Quantitative Analysis Business Valuation: buying company/assets, selling company/assets or dispersing and asset 2 approaches: 1) Asset based approach

h (Companies not going concern) Format: Net Equity as given Adjustment (look for tax effect point) Revised net value

other considerations are inventory write down, increased allowance for doubtful accounts or interest rate changes if assets revalued so should liabilities

2) Earnings/Cash Flow based valuation (companies being sold or acquired as a going concern) Format: Pre tax accounting income Adjustments to normalize income Adjusted pre-tax income Tax effect at a reasonable rate (25%-40%) Adjusted after tax income Non-cash items (depreciation, amortization, writeoffs) add back Adjusted cash flow Factor/Multipliers (divide adjusted cash flow by interest rate) Valuation Golf dues, bonus, rent justify rate and time period time period tied to case facts pre tax rate if earnings/cash flow stream before taxes and use after tax rate if your earnings/cash flow stream is tax effected

Cash Flow: Financing of Solvency 1) Cash Flow Future (basis of a loan or investment decision) look for info about future cash inflows and outflows (ie: expected capex) if past representative of future, use most recent income statement or forecase as starting point. If past not then use revenue and expense inflows from financing, liquidating investments, selling redundant assets

Format: Cash in - from operations - anticipated from other sources - current cash balance

Cash out - case specific (dept repayments, cap ex) - Ending Cash balance Justify: normally this would be due to bank being major user or CF being a means to show future viability Conclude: do they need financing, are the viable, will they be able to pay loan

2) Cash Flow Historic (what cash spent on, assess solvency, viability of business) - IS or BS comparative as starting point Format: Net Income Add back non-cash items Adjust for working capital account changes Source/use cash include more then the non cash items add back depreciation and amortization

Profitability (Divisional Analysis or Break Even) 1) Divisional Analysis (divisions or distinct products) -

is a transfer pricing scenario head office allocations are always arbitrary and should be eliminated from analysis

2) Contribution Analysis Format: Sales Less: variable costs Contribution Margin Divided by number of units Contribution margin per unit best to calculate SP and VC on per unit basis pricing decisions or product mix, capacity decisions no scare resource or desired investment return, product contributing a positive contribution should be continued

3) Divisional Income statement (profitability) Format: Revenues Variable costs Divisional contributions

Allocated fix costs (either remove arbitrary costs or reallocate traceable fixed costs or both) Divisional Income 4) Break Even (given sales or production volumes) Format: CM on per unit basis Fixed costs (total dollars) Divide total fixed costs by CM Sales variable costs = contribution margin common theme for fixed cost determination is to reward the candidate who considers interest on debt

Format: determine the contribution margin on a per unit basis determine fixed costs on a total dollar basis divide fixed costs in total by contribution margin per unit The contribution margin may be in dollar or as a % sales Fixed costs/ CM ($$) = Break even in units Fixed Costs/ CM % - Break event in Sales $ Net Present Value Investment Options/decisions Format: Future net cash flows Discount factor or multiplier Calculated present value Deduct investment consider tax shield Net present value starting point is future net cash flows investment costs must be deducted from the calculated present value

Make or buy whether it is more cost effective to produce a good internally or purchase it externally calculate incremental cash flows net present value