Blog Posts

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 […]

Below we’ll go through the four main ways debt crises can be rectified and how these levers are normally used. Debt defaults and restructurings Getting rid of bad debts – i.e., debts that won’t produce more than they cost – is vital for the future flow of capital and for a return to good economic […]

In this article, we’ll go through a hypothetical M&A transaction to look at the basic components and how to analyze one (M&A analysis). M&A analysis is important as mergers, acquisitions, and business combinings are a big part of the financial world. Many financial professionals – investment bankers, private equity, hedge funds and traders (e.g., merger […]

In this article, we’ll go over how to complete a cash flow statement from the income statement and balance sheet and how to analyze and interpret the cash flow statement. In accounting, the balance sheet, income statement, and cash flow statement are referred to as the “three statements.” Let’s go through each individually: Balance Sheet […]

We’ve covered valuation models from discounted cash flow to options pricing, to 1-/2-/3-stage growth models, and with respect to free cash flow to the firm (FCFF), free cash flow to equity (FCFE), dividend discount (DDM), economic value added (EVA), over a host of different scenarios. But how do we know which business valuation model is […]

In a different article, we introduced the FCFF valuation model. Here we will tie in the FCFF model with EVA (economic value added), a financial metric that estimates a company’s profit through the net surplus created from its investments. Mathematically, it can be expressed as (Profit of the firm) – (Cost of capital of the […]

Trading is like other businesses where you can achieve better results if you can achieve synergy. Synergy refers to using various parts of a portfolio in ways that help support and reinforce the other. We talked in separate articles about how having differentiated, uncorrelated returns streams in a portfolio and balancing and blending them well […]

Valuation multiples are a key component of financial modeling in assessing the value of a company. It is based on the idea that similar assets will tend to sell at similar prices, equivalent to the concept of how three-bedroom/two-bath houses sell for around the same price as others in a particular geographical area in a […]