For example, if you see an unusual form code and want to know what it is, try google first. If you can’t find a succinct answer quickly, then pop open this list and Ctrl + F. I never remember the website URL, so I always just google “SEC EDGAR.” The first result is the correct link. On the left side of the EDGAR webpage, you should see a search box labeled Company and Person Lookup.
Note that for simplicity, we are assuming there is no cash remaining on the B/S at exit – thus net debt is equal to total debt. Simply put, the objective behind multiple expansion is to “buy low, sell high”. Multiple Expansion is when an asset is purchased and later sold at a higher valuation multiple relative to the original multiple paid. Helping private company owners and entrepreneurs sell their businesses on the right terms, at the right time and for maximum value. But I’m talking about whether most value is created through synergies or just arbitrarily pricing a company at a higher number. After all, fund cycles are only 5-7 years and when 1 fund’s life is up and it is time to sell, then another fund likely needs to deploy their capital.
The balance sheet figure must contain a substantial discount. The blurb in the accounting policies also tells us which footnote has more info (note 7). It’s better (for you) if the latest 10-Q / 10-K is near the top of the list, because then you have to check fewer filings to ensure nothing material has changed. Remember – 8-Ks contain investor updates, so sometimes you can run into situations, in which an important 8-K is released after the latest 10-Q / 10-K. By default, you should check every filing above the latest 10-Q / 10-K, and it’s also a good idea to check any 8-Ks directly below the latest 10-Q / 10-K. No subsequent 8-Ks, and the latest 10-Q should have everything we need.
- We’ll need (i) the stock price and (ii) the fully diluted share count.
- Private equity firms bought downtrodden conglomerates and chopped them into tasty morsels to sell.
- In interpretation, the ratio tells us how much investors are willing to pay for each dollar of earnings.
- This means investors are willing to pay a multiple of 10 times the current EPS for the stock.
- Therefore, it is best to consider the exit multiple a highly correlated booster or detractor from returns.
But while any sign of revenue growth is a good thing, we recommend looking for strong year-over-year growth of at least 25% per share. At the same time, don’t assume that a company trading at a high multiple has less growth potential than one trading at a low. A P/E of 5x means a company’s stock is trading at a multiple of five times its earnings. A P/E of 10x means a company is trading at a multiple that is equal to 10 times earnings. Likewise, a company with a low P/E is considered to be undervalued. The multipole expansion is expressed as a sum of terms with progressively finer angular features (moments).
The Expansion
Dividing the exit transaction value by our 2026 unlevered free cash flow, we get an implied forward multiple of 8.9x. Therefore, this investment scenario is showing modest multiple contraction, since the forward multiple at exit is less than the initial forward multiple. Glancing at the income statement, we see that Slack has negative operating income, net income, and earnings per share. Therefore, we can delete the EV / EBITDA and P / E multiples from our PMO.
Working Capital Schedule
Note on Data ScrubbingPersonally, I find pulling and cleaning data extremely tedious, but going through the process always unearths some nuggets. But going through the financials yourself how to find programmers for your startup means you’re less likely to miss crucial details, and you’ll know the company and its disclosures better. This article will guide you through Slack’s historical financials.
Adding flexibility and proper casing to your model is key. This guide shows you how to turn our intermediate LBO template into a sophisticated, flexible model. While each equity waterfall is unique, it’s important to understand this concept, because it surprises many ex-bankers.
Multiple Expansion Calculator – Excel Template
We divide the proceeds by the stock price in order to calculate how many shares can be repurchased. Below the options table, we see a section on Restricted Stock Units https://traderoom.info/ and Restricted Stock Awards. These two types of compensation sound similar, but are quite different. Here’s a good overview on the difference between RSUs and RSAs.
A- Self-Referencing If Statements
For companies that have irregular or lumpy cash flows (e.g., highly seasonal businesses), mid-year convention is not a good fit. In order to complete the income statement and the statement of cash flows, we need to calculate interest expense. Therefore, we need to begin filling out the debt schedule. We must add back noncash interest expense in the statement of cash flows, since our net income includes all interest expense (noncash + cash interest expense). In the LBO model, PIK interest is the primary component of noncash interest expense. We can link to the basic share count and RSU count from our supporting data.
Maybe you make real LBOs, which are good preparation for private equity modeling tests, but paper LBOs are a different beast. We’re given the 2021 operating cash flow (excluding interest expense), and we’re told the value increases by 10 each year. While rare today, PIK interest was relatively common during the run-up to the 2008 financial crisis, and therefore, it is often seen as a symptom of loose credit markets and boom times. Many prominent 2006 and 2007 private equity deals had debt instruments with PIK interest. As you’ll recall, we noted an operating lease liability on the balance sheet as one of the potential debt-like items, so let’s read this section.
In those cases, the acquired company is not included in the consolidated balance sheet, and we would need to add any acquired cash to the previously noted amounts, etc. Fortunately, the acquisition of Rimeto was completed on June 29 – well before the balance sheet date (July 31). The exact metrics and multiples we use will depend on the company’s financials. Pretty simple, we multiply the number of shares by the stock price. We’ll need (i) the stock price and (ii) the fully diluted share count.
As we discovered in our filings research, Slack has convertible notes. These can be counted as either debt (included in net debt) or additional shares (assuming the debt converted to equity). Therefore, we’ll need to account for the convertible debt in both the diluted shares and net debt. Every balance sheet should include a cash and cash-equivalents line item under current assets. But we still need to read the rest of the balance sheet to ensure we’re not missing anything.
This is unfairly punitive, especially for cash earned in the next few months. You’ll notice that your sensitivity tables have the same values in every column (including the entry multiple column headers). For the IRR sensitivity table, we can link the entry multiple to the value above (on the Sensitivity tab). We shouldn’t link to the transaction multiple on the LBO tab again, because we’ve already imported that value. The next five values to link are the 5-year IRR values that we outlined on the LBO tab.
