Financial Modeling and Valuation

Other Expense (Income) 90 Deferred Taxes 91 Changes in Operating Working Capital 91 Cash from Investing Activities 92 Proceeds from Property and Equipment Sales and Incentives 98 Items Based on Cash Available 98 Cash Flow from Financing Activities 101 Effect of Exchange Rate on Cash 101 Chapter 3 The Balance Sheet 107 Assets 107 Current Assets 107 Cash and Cash Equivalents 107 Accounts Receivable 107 Inventory 108 Prepaid Expense 109 Non-Current Assets 110 Property, Plant, and Equipment (PP&E) 110 Intangible Assets 110 Liabilities 110 Current Liabilities 110 Accounts Payable 110 Accrued Liabilities 111 Short-Term Debts 111 Non-Current Liabilities 111 Long-Term Debts 111 Deferred Taxes 111 Amazon's Balance Sheet 112 Current Assets 113 Non-Current Assets 113 Operating Leases 114 Goodwill 114 Other Assets 114 Current Liabilities 114 Short-Term Debt 115 Non-Current Liabilities 115 Other Long-Term Liabilities 116 Shareholders' Equity 116 Common Stock and Additional Paid-in Capital 117 Treasury Stock, Accumulated Other Comprehensive Loss and Retained Earnings 117 Chapter 4 Depreciation Schedule 119 Straight-Line Depreciation 120 Accelerated Depreciation 121 Declining Balance 121 Sum of the Year's Digits 122 Modified Accelerated Cost Recovery System (MACRS) 122 Deferred Taxes 125 Deferred Tax Asset 125 NOL Carryback Example 126 Deferred Tax Liability 127 Projecting Depreciation 129 Straight-Line Depreciation 129 Anchoring Formula References 133 Projecting Deferred Taxes 152 Chapter 5 Working Capital 155 Operating Working Capital 156 Amazon's Operating Working Capital 158 Inventories 160 Accounts Receivable, Net and Other 162 Accounts Payable 163 Pignataro808893_ftoc.indd xi 07 Feb 2022 01:10:58 pm Accrued Expenses and Other 165 Unearned Revenue 166 Projecting Operating Working Capital 168 Receivables 168 Inventories 170 Accounts Payable 172 Accrued Expenses 174 Unearned Revenue 174 Operating Working Capital and the Cash Flow Statement 176 Changes in Inventory 178 Accounts Receivable 179 Changes in Accounts Payable 181 Changes in Accrued Expenses 182 Changes in Unearned Revenue 182 Chapter 6 Balance Sheet Projections 183 Cash Flow Statement Drives Balance Sheet vs. Balance Sheet Drives Cash Flow Statement 183 Assets 185 Inventories 186 Accounts Receivable 188 Liabilities 192 Shareholders' Equity 195 Balancing an Unbalanced Balance Sheet 196 NYSF Balance Sheet Balancing Method 201 Chapter 7 The Debt Schedule, Circular References, and Finalizing the Model 205 Debt Schedule Structure 206 Modeling the Debt Schedule 206 Short-Term Debt 206 Mandatory Issuances/(Retirements) and Non-Mandatory Issuances/(Retirements) 210 Long-Term Debt 214 Debt Interest 214 Long-Term Lease Liabilities 216 Total Issuances/(Retirements) 219 Total Interest Expense 219 Cash Available to Pay Down Debt 220 Interest Income 224 Circular References 235 Circular Reference #Value! Errors 242 Automatic Debt Paydowns 243 Basic Switches 252 Finalizing the Model 252 Part Two Valuation 277 Chapter 8 What Is Value? 279 Book Value 279 Market Value 279 Enterprise Value 280 Multiples 284 Three Core Methods of Valuation 286 Comparable Company Analysis 287 Precedent Transactions Analysis 287 Purchase Multiples 288 Discounted Cash Flow Analysis 289 Chapter 9 Discounted Cash Flow Analysis 291 Midyear vs. End-of-Year Convention 291 Unlevered Free Cash Flow 292 Weighted Average Cost of Capital (WACC) 300 Cost of Debt 301 Cost of Equity 301 Market Risk Premium 304 Beta 306 Levering and Unlevering Beta 307 Terminal Value 308 Multiple Method 308 Perpetuity Method 309 Amazon DCF Analysis 310 WACC 312 Cost of Equity 312 EBITDA Method 320 Perpetuity Method 322 Chapter 10 Comparable Company Analysis 327 Last Twelve Months (LTM) 329 Calendarization 330 Netflix as a Comparable Company 331 Netflix 2020 Year End 332 Revenue 333 Operating Expenses 335 Depreciation 335 Interest 337 Taxes 338 Non-Recurring Events 339 Earnings per Share (EPS) 339 Netflix Quarterly Income Statement 340 Netflix LTM Adjustments 345 Netflix Projections 345 Revenue 350 COGS 351 Depreciation 351 Interest 351 Taxes 352 Non-Recurring Events 353 Shares and Earnings per Share 353 Calculating Comparable Metrics 357 Market Value and Enterprise Value 360 Multiples 361 Chapter 11 Precedent Transactions Analysis 365 Identifying Precedent Transactions 365 Amazon Precedent Transaction Analysis 366 Chapter 12 Conclusion 375 52-Week High/Low 375 Comparable Company Analysis 376 Precedent Transactions 378 Discounted Cash Flow 379 Football Field 381 Appendix 1 Model Quick Steps 387 Appendix 2 Financial Statement Flows 389 Income Statement to Cash Flow 389 Cash Flow to Balance Sheet 390 Appendix 3 Excel Hotkeys 391 About the Author 393 About the WebSite 395 Index 397