Thank you very much!! Very clear Could you make a video about the Treasury Stock Method please? I don't understand why we deduct the repurchased shares after adding shares from in the money options in the calculation of NOSH fully diluted Thanks
Thanks. There isn't really that much to the Treasury Stock Method. You deduct the repurchased shares because you assume the company repurchases some of the newly created shares using the proceeds it receives from the employees who pay to exercise their options (no, that doesn't necessarily happen in real life, but it's a way to standardize the calculation). It would probably be a 3-minute tutorial.
Hi, I really like your videos, these are amazing and helps a lot during my daily analyst job. One question, maybe it is not a really good one, but could you explain to me, how the additions of right of use assets behaves? I mean should we count it to CAPEX, or not during free cash flow calculations? I know, that somehow we should clear FCF from it, but not know the way. I tend to believe that rent expenses have already included it, but eg I faced with the right of use assets in cash flow from investing activities. Many thanks!
They don't factor into the calculation because Additions to Right-of-Use Assets are offset by a corresponding increase in the Lease Liabilities. So there should be no net impact on FCF just from a company signing a new lease.
I have came across 3 different formulas for calculating Reinvestments,:- Reinvestment 1= capex+WC Reinvestment 2:- g/invested capital Reinvestment 3:- change in sales/sales to capital ratio I only know about the first one, which is used in calculating FCFF or FCFE Can you please tell me the difference b/w the second & third one & when, which and where they are used.
No one really uses the 2nd or 3rd ones. Metrics like Invested Capital are more useful in analysis of key metrics and ratios such as Return on Invested Capital (ROIC). These ratios can be useful when benchmarking companies and deciding whether long-term cash flow/3-statement projections make logical sense.
I am a 16 year old that is interested in finance(specifically investment banking and PE), and was wondering if I used and fully understood all of your content alone, would this be relatively adequate in the investment banking and PE industry(assuming I also have a decent understanding of excel and how to gather financial data). In other words would taking courses like macro and micro economics and accounting be necessary, and if so how much of an impact would it have? thank you for your content btw I find it very complex but at the same time rewarding when I fully understand the concept in question
I would recommend reading this article first to find out about the requirements: www.mergersandinquisitions.com/how-to-get-into-investment-banking/ Your major/classes matter far less than your internships.
Hey Most Companies in my country give bouns shares to the shareholders rather than cash dividend. Some give both. I know the general idea and effects of stock dividend and its impact on the company's financial statements. But it will be very helpful if you could give your detailed view on the topic.
Impossible to say because it depends on the company's debt. FCFE tends to produce lower values for companies with very high debt burdens because the high interest expense and principal repayments reduce FCFE, and the higher Debt balance also increases Cost of Equity.
Thank you for the excellent explanation. I am wondering if you could help me out. I am planning to enrol in some of your courses provided on the BIWS web site. As I am aware, your team provides an attractive discount if a client purchases 3 courses at once (excel, powerpoint and modelling). However, I am not quite sure I need all of them. I would be glad if you answer the following question. If I purchase 3-courses pack with a discount and find out that I do not need one of the courses, will I be able to request a refund only for this very course? Or it applies only for the whole pack? Thank you in advance for the response. Keep up with excellent content. Love your lucid explanations!!!
Thanks! If you find that you do not need all the courses in the Premium package, yes, you can request a refund for the one or two courses you do not need, but you would receive a refund based on the discounted price of that course, not the full price, since the courses are discounted in that package.
Could you please answer to my question: Why are we subtracting the Capex to arrive at the FCF?... I mean there are times where we have to raise funds (debt capital) or utilise the existing liquid assets (like using balance available in bank account) for purchasing or even for funding a major repair to a machinery... In such a case deducting such a Capex from the operating cash flow may give a wrong idea right?... (As the FCF may give a -ve figure even when the balance sheet has huge cash and bank balances as the Capex is funded out of existing bank balances or out of new debt financing which is again not considered in FCF calculation)... Thanks for the video btw :)
CapEx is a requirement to run most businesses. How a company funds the CapEx is irrelevant in a valuation context because you're usually trying to value the company on a capital structure-neutral basis (Enterprise Value).
Why doesn’t my equity value derived from FCFE and FCFF the same? And what are the conditions to make it equal? I guess it has something to do with tax shield, interest rate and principal payments.
It's never going to be the same because the value of the items in the TEV bridge will never equal the PV of the associated income and expenses exactly. Instead of trying to make them equivalent, jus use FCFF and forget that FCFE exists... no one cares outside of occasional interview questions.
Many thanks. I have one question: why we should add back other income/expenses to get FCFF from FCF? FCF also excludes them, or i'm wrong since it goes from NI?
@@financialmodeling but FCF = CFO - Capex. When calculating CFO, we adjust net income by eliminating the effect of other income/expense because it's non-operating income/expenses. So why should we do this operation once again additionally? The indirect CFS method has already done it for us)
@@lelioshmelio You don't eliminate Other Income / Expenses when calculating CFO. There are no adjustments to reverse those items. There's an adjustment only if some of them are non-cash because the CFO section adjusts for all non-cash items. If "Other Income / Expenses" consists of something like rental income from a side business, it is not reversed within CFO.
@@financialmodeling in this case isn't it a mistake to not reserve these items? Rental cash income should be shown in CFI section then. In most Russian financial statements I can see that other cash income/expenses are reversed in CFO, and then they go into CFI. Or there is any other way to solve this issue?
@@lelioshmelio It's not a mistake, it's just an accounting/presentation difference. Companies worldwide follow different standards. This line item is so small for the vast majority of companies that it's not worth thinking about in detail... focus on the key drivers.
No. An LBO uses "Free Cash Flow" i.e. Cash Flow from Operations minus CapEx, as one part of the formula to determine Cash Flow Available for Debt Repayment. You do end up subtracting debt principal repayments in an LBO, so in that sense, you could argue that it uses Levered FCF, but it's not an input to the model. At most, it's supplemental information or part of the output.
@@financialmodeling right, so for a DCF you’d use unlevered free cash flow because you’re calculating the enterprise value based on this, but for an LBO you’d use levered free cash flow because you want to calculate the cash available for debt repayment
![Working Capital and the Change in Working Capital in Valuation and Financial Modeling [REVISED]](http://i.ytimg.com/vi/tMgty8jwmHI/mqdefault.jpg)
![เปิดใจ พี่ญา คนรุม หลังทัวร์ลง หนักสุดในชีวิต!! l [Nickynachat]](http://i.ytimg.com/vi/2-OJZRtclro/mqdefault.jpg)
ah yes, my favorite video of the month. thanks for always keeping me versed on financial terms & applications! happy new year
Thanks for watching!
As always, thanks for this practical & straightforward tutorial. Great material
Thanks for watching!
Thanks for taking the time to do a refresh! Super helpful and informative!
Thanks for watching!
Better than last vid, thank you
Thanks for watching!
Thank you very much!! Very clear
Could you make a video about the Treasury Stock Method please? I don't understand why we deduct the repurchased shares after adding shares from in the money options in the calculation of NOSH fully diluted
Thanks
Thanks. There isn't really that much to the Treasury Stock Method. You deduct the repurchased shares because you assume the company repurchases some of the newly created shares using the proceeds it receives from the employees who pay to exercise their options (no, that doesn't necessarily happen in real life, but it's a way to standardize the calculation). It would probably be a 3-minute tutorial.
Clear and Crisp! Gracias BIWS
Thanks for watching!
Hi, I really like your videos, these are amazing and helps a lot during my daily analyst job. One question, maybe it is not a really good one, but could you explain to me, how the additions of right of use assets behaves? I mean should we count it to CAPEX, or not during free cash flow calculations? I know, that somehow we should clear FCF from it, but not know the way. I tend to believe that rent expenses have already included it, but eg I faced with the right of use assets in cash flow from investing activities. Many thanks!
They don't factor into the calculation because Additions to Right-of-Use Assets are offset by a corresponding increase in the Lease Liabilities. So there should be no net impact on FCF just from a company signing a new lease.
I have came across 3 different formulas for calculating Reinvestments,:-
Reinvestment 1= capex+WC
Reinvestment 2:- g/invested capital
Reinvestment 3:- change in sales/sales to capital ratio
I only know about the first one, which is used in calculating FCFF or FCFE
Can you please tell me the difference b/w the second & third one & when, which and where they are used.
No one really uses the 2nd or 3rd ones. Metrics like Invested Capital are more useful in analysis of key metrics and ratios such as Return on Invested Capital (ROIC). These ratios can be useful when benchmarking companies and deciding whether long-term cash flow/3-statement projections make logical sense.
I am a 16 year old that is interested in finance(specifically investment banking and PE), and was wondering if I used and fully understood all of your content alone, would this be relatively adequate in the investment banking and PE industry(assuming I also have a decent understanding of excel and how to gather financial data). In other words would taking courses like macro and micro economics and accounting be necessary, and if so how much of an impact would it have? thank you for your content btw I find it very complex but at the same time rewarding when I fully understand the concept in question
I would recommend reading this article first to find out about the requirements: www.mergersandinquisitions.com/how-to-get-into-investment-banking/ Your major/classes matter far less than your internships.
@@financialmodeling great thank you!!
Hey
Most Companies in my country give bouns shares to the shareholders rather than cash dividend. Some give both. I know the general idea and effects of stock dividend and its impact on the company's financial statements. But it will be very helpful if you could give your detailed view on the topic.
Thanks, we may cover that in the future
Question : Which will give higher valuation : Free cash flow to the firm or Free cash flow to Equity?
Impossible to say because it depends on the company's debt. FCFE tends to produce lower values for companies with very high debt burdens because the high interest expense and principal repayments reduce FCFE, and the higher Debt balance also increases Cost of Equity.
Thank you for the excellent explanation. I am wondering if you could help me out. I am planning to enrol in some of your courses provided on the BIWS web site. As I am aware, your team provides an attractive discount if a client purchases 3 courses at once (excel, powerpoint and modelling). However, I am not quite sure I need all of them. I would be glad if you answer the following question. If I purchase 3-courses pack with a discount and find out that I do not need one of the courses, will I be able to request a refund only for this very course? Or it applies only for the whole pack?
Thank you in advance for the response. Keep up with excellent content. Love your lucid explanations!!!
Thanks! If you find that you do not need all the courses in the Premium package, yes, you can request a refund for the one or two courses you do not need, but you would receive a refund based on the discounted price of that course, not the full price, since the courses are discounted in that package.
@@financialmodeling Thanks! Sure, no arbitrage;)
@@dmitrystikheev3384 Sure, let us know if you have any additional questions.
Could you please answer to my question:
Why are we subtracting the Capex to arrive at the FCF?...
I mean there are times where we have to raise funds (debt capital) or utilise the existing liquid assets (like using balance available in bank account) for purchasing or even for funding a major repair to a machinery...
In such a case deducting such a Capex from the operating cash flow may give a wrong idea right?... (As the FCF may give a -ve figure even when the balance sheet has huge cash and bank balances as the Capex is funded out of existing bank balances or out of new debt financing which is again not considered in FCF calculation)...
Thanks for the video btw :)
CapEx is a requirement to run most businesses. How a company funds the CapEx is irrelevant in a valuation context because you're usually trying to value the company on a capital structure-neutral basis (Enterprise Value).
Why doesn’t my equity value derived from FCFE and FCFF the same? And what are the conditions to make it equal?
I guess it has something to do with tax shield, interest rate and principal payments.
It's never going to be the same because the value of the items in the TEV bridge will never equal the PV of the associated income and expenses exactly. Instead of trying to make them equivalent, jus use FCFF and forget that FCFE exists... no one cares outside of occasional interview questions.
Many thanks. I have one question: why we should add back other income/expenses to get FCFF from FCF? FCF also excludes them, or i'm wrong since it goes from NI?
Because FCF deducts these items, as it starts with Net Income, and Net Income deducts Other Expenses and adds Other Income.
@@financialmodeling but FCF = CFO - Capex. When calculating CFO, we adjust net income by eliminating the effect of other income/expense because it's non-operating income/expenses. So why should we do this operation once again additionally? The indirect CFS method has already done it for us)
@@lelioshmelio You don't eliminate Other Income / Expenses when calculating CFO. There are no adjustments to reverse those items. There's an adjustment only if some of them are non-cash because the CFO section adjusts for all non-cash items. If "Other Income / Expenses" consists of something like rental income from a side business, it is not reversed within CFO.
@@financialmodeling in this case isn't it a mistake to not reserve these items? Rental cash income should be shown in CFI section then. In most Russian financial statements I can see that other cash income/expenses are reversed in CFO, and then they go into CFI. Or there is any other way to solve this issue?
@@lelioshmelio It's not a mistake, it's just an accounting/presentation difference. Companies worldwide follow different standards. This line item is so small for the vast majority of companies that it's not worth thinking about in detail... focus on the key drivers.
Can we download this super excel file?
Click "more" and scroll to the bottom.
Unfortunately there is no more options to download the excel file. Can you please recheck? Many thanks. ❤
@@sonerguney3225 youtube-breakingintowallstreet-com.s3.us-east-1.amazonaws.com/105-26-What-is-Free-Cash-Flow.xlsx
Isn’t levered free cash flow needed for LBO Modelling?
No. An LBO uses "Free Cash Flow" i.e. Cash Flow from Operations minus CapEx, as one part of the formula to determine Cash Flow Available for Debt Repayment. You do end up subtracting debt principal repayments in an LBO, so in that sense, you could argue that it uses Levered FCF, but it's not an input to the model. At most, it's supplemental information or part of the output.
@@financialmodeling right, so for a DCF you’d use unlevered free cash flow because you’re calculating the enterprise value based on this, but for an LBO you’d use levered free cash flow because you want to calculate the cash available for debt repayment