Foreword
My notes here are really thin, as this course was a lot more hands-on in nature (with Excel file walkthroughs).
Note
- For a big acquisition, you don’t just pro-forma, you stub it to show how much of the financials come for the year, if you buy in Mar (for a Dec-YE), you will only get 9/12 of the biz... so you pro-forma 9/12 of that year
- JVs are shown below EBIT, and when you just take EBIT, you’ll miss out the JV stuff
- If you don’t account for provision outflow in the FCF, then take it out of the bridge as a liability
- We have to make a decision, even on leases, whether we take it as an operational item and take it out of FCF, or if you treat it as a liability and take it out of the bridge
- That’s a constant debate we’ll have
- As long as you don’t double count (i.e. take out of operational and also out of bridge)
- TV calc done on the final year of the FCF
- Earnout is non-core cash, long-term investments are non-core, earnout is a milestone based payment. Look out for financial asset, sales.
- THE PRINCIPLE IN FINANCE IS THAT YOU SHOULD DEDUCT THINGS ONCE, AVOID DOUBLE COUNTING. So you either get it out of the financials, or you get it out of the bridge.
- Bit of inflation on depreciation, so capex positive delta over depreciation should converge over time
- Reinvestment Rate = NOPAT / FCF – 1
- Reinvestment Rate = 1 – (FCF/NOPAT)
- Leases
- For IFRS, on all leases, it’s depreciation and interest expense
- So it’ll be all after EBITDA or even EBITDAR 😊
- Sometimes people put it in PP&E, sometimes in ROU for leases
- Easyjet puts ROU assets within PP&E
- Both the interest and the capital payment is taken as the real cash outflow for the lease
- There is no EV adjustment to be made
- No adjustment on P/E
- EBITDAR is so you can add back rent to US GAAP (so we get a clean EBITDA)
- IFRS has a clean EBITDA (because it’s depreciation and interest expense)
- So just use EV/EBITDAR
- P/E multiples, no adjustments needed
- The real problem is that the Pre-IFRS numbers for EBITDA will need to be adjusted
- The new dynamic is much better, the only real pain is having to adjust the Pre-2016 numbers
- Putting the lease into the FCF, and then not adjusting in the bridge is ideal, because then you reduce the FCF and that’s more theoretically correct
- Treat it as operating
- For DCF, get IFRS to US GAAP
- Nothing to adjust on the EV/EBIT, EV/EBITDA, Equity Multiples
- Can’t be adding back SBC and double counting it in the FCF
- EBIT and EBITDA both have accounted for SBC, it’s after SBC
- You need to treat SBC as a cash expense
- Either you decrease the value via cash, or via dilution to existing shareholders
- For future stock options, treat them as cash expense normal salaries, just subtract and that’s it
- For previous stock options, that should be in the diluted share-count
- For past stock options, you do the diluted share count using treasury stock method, and that will get you the diluted share count for today, and you don’t need to do anything beyond that