Four weeks of modules

Focus areas

• The three statements and how they link: net income flows into equity, depreciation into cash flow, working capital into the balance sheet
• Reading an income statement, balance sheet, and cash flow statement as one system
• EBITDA, EBIT, unlevered free cash flow, and the adjustments that turn accrual income into cash
• Working capital mechanics and why growth consumes cash
• Non-recurring items, deferred taxes, and other model adjustments

Actionable tasks

• 01Reconcile one real company's three statements by hand: net income to cash flow, and cash flow to the balance sheet
• 02Build the bridge from net income to unlevered free cash flow and annotate every line
• 03Identify and quantify at least three non-recurring items in the company's recent filings

Focus areas

• Present value, future value, and the discount rate as the price of waiting
• Annuities, perpetuities, and growing perpetuities
• Mid-year versus end-year discounting and when each is appropriate
• Nominal versus real cash flows and inflation consistency
• The relationship between discount rate, growth, and terminal value

Actionable tasks

• 01Derive the growing perpetuity formula from first principles and state its assumptions
• 02Discount a ten-year cash flow stream under end-year and mid-year conventions and reconcile the difference
• 03Prove that a 2% terminal growth rate is worth a specific amount of value in your DCF

Focus areas

• The weighted average cost of capital and its components
• CAPM: risk-free rate, equity risk premium, beta, and the size premium
• Levering and unlevering beta (Hamada), and when to use each
• Cost of debt, tax shield, and the after-tax cost of debt
• Target versus actual capital structure

Actionable tasks

• 01Estimate the cost of equity for your company using CAPM and justify every input
• 02Unlever and relever beta for the company's target capital structure
• 03Build a WACC bridge showing the sensitivity of WACC to each input

Focus areas

• The anatomy of a DCF: forecast, terminal value, and discounting
• Unlevered free cash flow as the numerator
• Terminal value: perpetuity growth versus exit multiple
• Enterprise value to equity value: net debt, minorities, and options
• The circularity between WACC and capital structure

Actionable tasks

• 01Build a base-case DCF with a five-year explicit forecast and a perpetuity terminal value
• 02Cross-check the terminal value using an exit multiple and explain any gap
• 03Walk from enterprise value to equity value and reconcile with market value

Focus areas

• Forecast rigor: revenue build, margin drivers, and capital intensity
• Sensitivity analysis on growth, margin, and discount rate
• The terminal value as the largest and most fragile input
• Scenario analysis: base, bull, and bear cases
• Common DCF errors and how to catch them

Actionable tasks

• 01Build a three-scenario DCF and present the value range with drivers for each scenario
• 02Run a two-variable sensitivity table on terminal growth and WACC
• 03Audit your DCF for the five most common errors and document the fixes

Focus areas

• Selecting a defensible peer set
• EV/EBITDA, P/E, EV/Sales, and P/B: what each multiple captures and misses
• Forward versus trailing multiples and the data behind them
• Normalizing earnings and adjusting for non-recurring items
• Building a comps table and reading the range

Actionable tasks

• 01Build a trading comps table for your company with at least six peers
• 02Justify the peer set and the multiple you weight most heavily
• 03Imply a value range from the comps and reconcile it with your DCF

Focus areas

• Finding and screening relevant M&A transactions
• Control premium and why precedents trade above trading comps
• Deal multiples versus trading multiples
• Adjusting for deal structure, synergies, and timing
• Building a precedents table

Actionable tasks

• 01Compile a precedents table of at least five comparable transactions
• 02Isolate the control premium embedded in the precedent multiples
• 03Derive a value range from precedents and explain its relationship to comps and DCF

Focus areas

• Building a clean assumptions block that drives the whole model
• Scenario switching without breaking the model
• Sensitivity tables and tornado charts
• Presenting a valuation range with confidence
• Stress-testing the thesis

Actionable tasks

• 01Build a scenario manager that switches base, bull, and bear with one control
• 02Produce a tornado chart of the five inputs that move value most
• 03Write a one-page thesis defending your value range against the bear case

Focus areas

• What a leveraged buyout is and why debt is the return engine
• Sources and uses: equity, senior debt, mezzanine, and equity co-invest
• Sponsor return math: IRR and MOIC
• The debt capacity question and cash-flow coverage
• Why sponsors care about deleveraging over the hold period

Actionable tasks

• 01Explain, in one paragraph, why leverage increases sponsor IRR
• 02Build a sources and uses table for a sample buyout and balance it
• 03Calculate IRR and MOIC by hand for a simple three-year hold

Focus areas

• The three-statement model as the backbone of an LBO
• Debt schedule mechanics: mandatory amortization, cash sweep, revolvers
• Modeling the circular reference between interest and cash
• Exit value: exit multiple versus exit year EBITDA
• Return waterfall and sponsor equity value

Actionable tasks

• 01Build a full three-statement LBO model with a debt schedule and cash sweep
• 02Model the circular reference and verify the model balances
• 03Compute IRR and MOIC under the base exit and two stress exits

Focus areas

• Senior debt, term loans, and revolving credit facilities
• High-yield bonds and mezzanine debt
• Covenants: leverage and interest coverage tests
• Pricing, fees, and the cost of each layer
• Capital structure trade-offs and credit ratings

Actionable tasks

• 01Map a realistic capital structure for a mid-market buyout and price each layer
• 02Test the structure against the coverage covenants and flag the risk
• 03Explain how a ratings downgrade would change the cost of each layer

Focus areas

• The deal lifecycle: sourcing, diligence, pricing, closing, ownership, exit
• Commercial, financial, legal, and operational diligence
• Valuation in an auction versus a bilateral negotiation
• The investment committee memo and its structure
• Ownership period value creation and exit options

Actionable tasks

• 01Draft the skeleton of an investment committee memo for your LBO
• 02List the diligence workstreams and what each must clear
• 03Describe two value-creation levers and how they show up in the model

Focus areas

• Purchase price, consideration mix, and deal structure
• Sources and uses for an acquisition
• Goodwill and purchase price allocation
• The combined company's financial statements
• Synergies: revenue, cost, and financial

Actionable tasks

• 01Build the sources and uses for an acquisition and allocate the purchase price
• 02Model the combined income statement with synergies
• 03Identify the synergies a deal must realize to make the price rational

Focus areas

• EPS accretion and dilution and what it does and does not tell you
• The impact of deal financing on EPS
• Cash, stock, and mixed consideration
• When accretion/dilution matters and when it is noise
• Linking the analysis to strategic value creation

Actionable tasks

• 01Run an accretion/dilution analysis for a sample merger in both cash and stock
• 02Explain why a dilutive deal can still be value-accretive strategically
• 03Present the EPS bridge and its key drivers

Focus areas

• When value is in the capital structure rather than the equity
• Enterprise value versus equity value in distress
• Chapter 11 and the reorganization plan
• Debt-for-equity swaps and creditor recoveries
• Distressed valuation methods

Actionable tasks

• 01Value a distressed company from the debt side and estimate recoveries
• 02Explain the priority of claims and who gets paid first
• 03Walk through a debt-for-equity swap and its effect on the cap table

Focus areas

• Valuation versus price: where they diverge and why
• Earnouts, escrows, and contingent consideration
• Representations, warranties, and indemnities
• Post-merger integration and value capture
• The judgment that separates a good banker from a model

Actionable tasks

• 01Design a deal structure that bridges a valuation gap using an earnout
• 02Draft the negotiation points that protect value after signing
• 03Write the integration risks that could destroy the deal's modeled synergies