A. The recognition of revenue in case of FOB (Free on Board) and CIF (Cost, Insurance and Freight) basis is determined by the point at which the ownership of the goods is transferred to the buyer. In case of FOB (Free on Board) basis, the ownership of the goods is transferred to the buyer once…...
A. Operating leverage and financial leverage are two types of leverage that refer to how a company uses debt to amplify the returns on its operations or investments. Operating leverage is the extent to which a company’s operations are financed with fixed costs, such as salaries and rent, as opposed to variable costs, such as…...
A. Financial ratios are used to evaluate a company’s financial performance and health by comparing different financial metrics. There are many different financial ratios that can be used, but some of the most common ratios include: Liquidity Ratios: 1. Current Ratio: Current Assets/Current Liabilities 2. Quick Ratio or Acid Test Ratio: (Current Assets – Inventory)/Current…...
A. Working capital is a measure of a company’s short-term liquidity and is calculated as the difference between a company’s current assets and its current liabilities. Negative working capital occurs when a company’s current liabilities exceed its current assets. This means that a company’s short-term obligations are greater than its short-term resources. When a company…...
A. Free cash flow (FCF) is a measure of a company’s cash flow that is available for distribution after accounting for capital expenditures. It is the cash that a company generates after accounting for the funds necessary for maintaining and growing its business operations. The formula for calculating free cash flow is: Free Cash Flow…...
A. The most important thing to look for in an annual report while performing financial due diligence is the financial statements, including the income statement, balance sheet, and cash flow statement. These statements provide a detailed picture of the company’s financial performance over the past year and can be used to analyze trends and key…...
A. Deferred revenue is a liability that represents revenue that a company has received but has not yet earned. It is revenue that a company has received in advance for goods or services that will be provided in the future. There is no accounting for deferred revenue. If the customer has already paid it will…...
A. The enterprise value (EV) of a company is a measure of the total value of a company. It is calculated by adding the market capitalization of the company, the outstanding debt, and any preferred stock, and then subtracting any cash and cash equivalents. The formula for calculating enterprise value is: EV = (Market Capitalization)…...
A. EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It is a measure of a company’s financial performance that excludes certain non-cash expenses, such as interest, taxes, depreciation, and amortization. EBITDA is calculated by taking a company’s net income and adding back interest, taxes, depreciation, and amortization expenses. This results in a measure…...
A. A Confidential Information Memorandum (CIM) is a document that is typically used in the process of selling or raising capital for a business. It is a document that provides detailed information about a business, including its operations, financial performance, and future prospects, to potential buyers or investors. The CIM is usually prepared by the…...
A. The most important aspect of financial due diligence is to thoroughly review and understand the target company’s financial statements, financial performance, and financial position. This includes reviewing historical financial statements, such as income statements, balance sheets, and cash flow statements, as well as understanding the trends and key drivers of the company’s financial performance…....
A. When performing financial due diligence, the information requested will vary depending on the specific circumstances of the transaction, the nature of the business, and the specific areas of concern. However, some of the most common financial information that is requested during due diligence includes: 1. Financial statements: This includes balance sheets, income statements, cash…...
A. Target working capital refers to the optimal level of a company’s current assets and liabilities that is required to support its ongoing operations and growth. It is the ideal balance of a company’s short-term assets and liabilities that is needed to meet its operational and financial needs. Target working capital is typically determined by…...
Quality of assets (QOA) refers to the condition, value, and overall performance of a company’s assets. It is a measure of the underlying economic value and performance of a company’s assets, and it is used to assess the quality of a company’s assets and its ability to generate future cash flows. One common formula is…...
Quality of Earnings (QOE) refers to the sustainability, predictability, and stability of a company’s earnings. It is a measure of the underlying economic performance of a company, and it is used to assess the quality of a company’s earnings and its ability to generate future cash flows. The formula is Net Cash from Operating Activities/Net…...
The most important deliverable for Financial Due Diligence (FDD) is a comprehensive report that summarizes the findings and conclusions of the FDD process. This report should provide a detailed analysis of the company’s financial and operational performance, including an assessment of the company’s financial stability, potential risks and opportunities, and future prospects. The report should…...
Financial Due Diligence (FDD) is a process of evaluating the financial and operational aspects of a company or a business before making an investment or a business decision. FDD provides a detailed analysis of the company’s financial performance, financial position, and future prospects. It helps to identify potential risks, opportunities and to assess the company’s…...
Financial Due Diligence (FDD) is an examination and analysis of a company’s financial information to assess its overall financial health and performance. The purpose of FDD is to gain a comprehensive understanding of a company’s financial situation and to identify any potential risks or concerns. FDD typically involves the review of historical financial statements, including…...
Financial Fees → Financing fees are related to raising debt or the issuance of equity and can be capitalized and amortized over the tenor of the debt (~5-7 years). Transaction Fees → On the other hand, transaction fees refer to the M&A advisory fees paid to investment banks or business brokers, as well as the…...
A candidate for an LBO should possess the majority (or all) of the following qualities: A mature industry with a defendable market position, a business model with recurring revenue, a strong, committed management team, and a variety of revenue streams with little cyclicality; and steady, predictable cash flow generation Low Capex Needs & Working Capital…...
1) Deleveraging – As more loan principal is paid down with the help of the cash flows produced by the acquired company, the value of the equity held by the private equity firm increases over time. 2) EBITDA Growth Increasing EBITDA can be done through introducing new growth strategies to boost revenue, cost-cutting initiatives to…...
Ans. A high percentage of borrowed money is typically used to finance an LBO, and the private equity sponsor contributes just a modest amount of equity to the deal. The sponsor will be able to earn more money when selling the investment because the debt’s principal will be reduced throughout the course of the holding…...
Step 1 – Entry Valuation – Calculating the implied entry valuation based on the entry multiple and LTM EBITDA of the target firm is the first step in creating an LBO model. Step 2 – Sources and Uses, the proposed transaction structure will then be shown in the “Sources and Uses” section. The “Sources” side…...
A reverse merger (also known as a reverse takeover or reverse IPO) is a way for private companies to go public, typically through a simpler, shorter, and less expensive process. A conventional initial public offering (IPO) is more complicated and expensive, as private companies hire an investment bank to underwrite and issue shares of the…...
Leveraged buyout (LBO) is the acquisition of another company using a significant amount of borrowed money to meet the cost of acquisition. The assets of the company being acquired are often used as collateral for the loans, along with the assets of the acquiring company. The purpose of leveraged buyouts is to allow companies to…...
▪ Synergy ▪ Diversification ▪ Growth ▪ Eliminating competition Favorite… To get access, please buy CA Interview Question Bank...
Horizontal merger is when two companies which belong to the same industry merge – for example the Vodafone and Idea merger. They belong to the same industry i.e. telecommunications. A vertical merger is a merger between two companies that operate at separate stages of the production process for a specific finished product. A vertical merger…...
A conglomerate merger is a merger between firms that are involved in totally unrelated business activities. There are two types of conglomerate mergers: pure and mixed. Pure conglomerate mergers involve firms with nothing in common, while mixed conglomerate mergers involve firms that are looking for product extensions or market extensions. Favorite… To get access, please...
A merger occurs when two separate entities combine forces to create a new, joint organization. An acquisition refers to the takeover of one entity by another. A new company does not emerge from an acquisition; rather, the smaller company is often consumed and ceases to exist, and its assets become part of the larger company…....
▪ Competition Commission of India ▪ Reserve Bank of India ▪ Depositories ▪ Stock exchanges ▪ Registrar of Companies ▪ Regional Director ▪ Official liquidator ▪ NCLT – replaced High Courts Favorite… To get access, please buy CA Interview Question Bank...
Advantages of mergers ▪ Economies of scale – bigger firms more efficient ▪ More profit enables more research and development. ▪ Struggling firms can benefit from new management. Disadvantages of mergers ▪ Increased market share can lead to monopoly power and higher prices for consumers ▪ A larger firm may experience diseconomies of scale –…...
