Blog Posts

Using the Black-Scholes options pricing model, we can determine: the level of equity in a firm its value of outstanding debt the appropriate interest rate on the debt it has, and its risk neutral probability of default (i.e., bankruptcy) This model would be most applicable to distressed, highly leveraged firms. A distressed firm is one […]

Most traders and investors, especially those in developed markets, have grown accustomed to the fact that markets are liquid and they reliably open and close at predefined hours during certain days of the week. However, capital markets can also dry up or even disappear altogether. We also tend to be used to the idea that […]

Those in accounting, business, and finance will become familiar with the three types of financial accounting statements: income statement balance sheet, and cash flow statement All three serve as financial analysis reports to shed insight into how efficiently and effectively a business is operating. Let’s take a look at the nuts and bolts of all […]

A leveraged buyout (LBO) is a transaction where a financial sponsor purchases a company or specific asset with equity and substantial amounts of borrowed capital. The target company being acquired has its assets and cash flows used as leverage in the buyout to obtain and finance the deal. The LBO is a common transaction form […]

In other articles, we’ve argued that bitcoin and cryptocurrency can have a place in a balanced portfolio. In other words, some is okay, but too much can venture into speculation. (How Much of a Portfolio Should Be in Cryptocurrency?) The main limitation is its high volatility and high correlation to other kinds of assets (riskier […]

Precedent transactions is among the major three types of valuation methods used for companies, in addition to discounted cash flow (DCF) and company comparable analysis (“comps”). Precedent transactions modeling is predicated on the idea that a company can be valued by analyzing the selling prices of similar companies under similar purchasing conditions in the past. […]

Business executives may elect to undergo firm restructuring to change the operational structures of their companies for purposes of making it more profitable (e.g., lower tax burden) or better organized for its current needs. Or it can be done out of necessity due to a demerger, buyout, insolvency, or basic marketing needs. Restructuring is frequently […]

Synergy measures the degree to which two firms function more efficiently or more profitably relative to how they perform as individual entities. The idea behind synergy is one of the central purposes of completing a merger in the first place. If the two corporations aren’t more profitable or better off in some fashion together, what […]

The value of control in a firm represents the level of premium that might be expected to be paid if it were acquired in dollar terms. When a company is acquired for a majority share, the previous regime is very likely to forfeit its decision-making power, as it’s one of the central objectives in a […]

In addition to the previous models of valuation we have covered, firm valuation can also be estimated using the debt type associated with the business – gross or net. Like all financial models, where assumptions are inherent within their foundation in order to produce results and estimations, gross and net debt make their own assumptions […]