0:00 – Introduction
\n1:07 – Part 1: The Short Answer About Equity Value
\n3:07 – Part 2: Excel Demonstration
\n9:54 – Part 3: Other Rules and Notes
\n12:29 – Recap and Summary Lesson<\/p>\n
![\"PowerPoint](\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/04\/24164120\/adv-fm-tile.png\")
\n <\/div>\n Master Financial Modeling for Investment Banking With BIWS Core Financial Modeling<\/strong><\/h3>\n <\/div>\n <\/div>\n \n \n \t\n \t- \n \t
Become a financial modeling pro<\/h4>\n
158 videos, detailed written guides, Excel files, quizzes, and more<\/p>\n\t\t\t <\/li>\n
- \n \t
Complete 10+ detailed global case studies<\/h4>\n
These include both the theory and the practical applications<\/p>\n\t\t\t <\/li>\n
- \n \t
Prepare for your internship or full-time job<\/h4>\n
Gain the skills you need to \u201chit the ground running\u201d on Day 1\n\n<\/p>\n\t\t\t <\/li>\n <\/ul>\n \n Full Details<\/a>\n \n Short Outline<\/a>\n <\/div>\n<\/div><\/div>\n\nLesson Outline:<\/strong>
\nQUESTION: \u201cYou\u2019ve said that it\u2019s possible to earn an acceptable IRR in a leveraged buyout even if the company\u2019s EBITDA and EBITDA multiple stay the same, meaning its Enterprise Value stays the same.<\/p>\nThis is because Debt Repayment and Cash Generation are also sources of returns.
\nBut\u2026 your lessons on Equity Value and Enterprise Value also say that Debt Repaid with Cash does not change Equity Value\u2026<\/p>\n
So\u2026 how does this work in an LBO? Does Debt Repayment boost Equity Value there for some reason?\u201d<\/p>\n
SHORT ANSWER: The Change in Cash Attributable to Common Shareholders, not Debt Repayment, boosts a company\u2019s Equity Value in a leveraged buyout where its Enterprise Value stays the same.<\/p>\n
Cash is a non-core Asset, so changes in Cash could affect Equity Value, but not Enterprise Value.<\/p>\n
If Cash changes, Equity Value will change only if the change in Cash was due to common shareholders.<\/p>\n
For example, Net Income generated by the business (flows into Equity), Dividends, Stock Issuances and Repurchases are all changes that affect both Cash on the Assets side and Equity Value.<\/p>\n
In LBOs, you typically ignore Stock Issuances and Repurchases or set them to 0, so Net Income and Dividends are the main relevant Cash-affecting items.<\/p>\n
So, in an LBO, even if a company\u2019s Enterprise Value stays the same, Equity Value keeps increasing as long as the Cash balance keeps increasing due to cash flows from Net Income generated.<\/p>\n
It doesn\u2019t matter how the company uses this Cash balance \u2013 it could repay Debt, or it could let Cash accumulate on its BS, and Equity Value would keep changing in the same way.<\/p>\n
The only restriction is that the company can\u2019t use Cash on core-business Assets, such as PP&E, or Enterprise Value would change.<\/p>\n
This rule breaks down if the company\u2019s EBITDA or EV \/ EBITDA multiple change.<\/p>\n
When that happens, the value of the company\u2019s core-business Assets changes, which means that Total Assets change.<\/p>\n
Change in Total Assets = Change in Core-Business Assets + Change in Non-Core-Business Assets (primarily Cash).<\/p>\n
So, in this scenario, you must factor in *both* sets of changes to calculate the company\u2019s Equity Value each year.<\/p>\n
Change in Equity Value = Change in Core-Business Assets due to Changes in Enterprise Value + Change in Cash Attributable to Common Shareholders (primarily Net Income generated by the business).<\/p>\n","protected":false},"excerpt":{"rendered":"
In this tutorial, you\u2019ll learn how Equity Value and Enterprise Value change in the context of leveraged buyouts, and how it\u2019s possible to earn an acceptable IRR in an LBO even if the company\u2019s core business remains stagnant and its Enterprise Value does not change during the holding period. Table of Contents: 0:00 – Introduction […]<\/p>\n","protected":false},"featured_media":0,"template":"","class_list":["post-23836","biws_kb","type-biws_kb","status-publish","hentry","kb_category-equity-value-enterprise-value"],"acf":[],"_links":{"self":[{"href":"https:\/\/breakingintowallstreet.com\/wp-json\/wp\/v2\/biws_kb\/23836","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/breakingintowallstreet.com\/wp-json\/wp\/v2\/biws_kb"}],"about":[{"href":"https:\/\/breakingintowallstreet.com\/wp-json\/wp\/v2\/types\/biws_kb"}],"wp:attachment":[{"href":"https:\/\/breakingintowallstreet.com\/wp-json\/wp\/v2\/media?parent=23836"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
- \n \t
- \n \t
Become a financial modeling pro<\/h4>\n
158 videos, detailed written guides, Excel files, quizzes, and more<\/p>\n\t\t\t <\/li>\n
- \n \t
Complete 10+ detailed global case studies<\/h4>\n
These include both the theory and the practical applications<\/p>\n\t\t\t <\/li>\n
- \n \t
Prepare for your internship or full-time job<\/h4>\n
Gain the skills you need to \u201chit the ground running\u201d on Day 1\n\n<\/p>\n\t\t\t <\/li>\n <\/ul>\n \n Full Details<\/a>\n \n Short Outline<\/a>\n <\/div>\n<\/div><\/div>\n\n
Lesson Outline:<\/strong>
\nQUESTION: \u201cYou\u2019ve said that it\u2019s possible to earn an acceptable IRR in a leveraged buyout even if the company\u2019s EBITDA and EBITDA multiple stay the same, meaning its Enterprise Value stays the same.<\/p>\nThis is because Debt Repayment and Cash Generation are also sources of returns.
\nBut\u2026 your lessons on Equity Value and Enterprise Value also say that Debt Repaid with Cash does not change Equity Value\u2026<\/p>\nSo\u2026 how does this work in an LBO? Does Debt Repayment boost Equity Value there for some reason?\u201d<\/p>\n
SHORT ANSWER: The Change in Cash Attributable to Common Shareholders, not Debt Repayment, boosts a company\u2019s Equity Value in a leveraged buyout where its Enterprise Value stays the same.<\/p>\n
Cash is a non-core Asset, so changes in Cash could affect Equity Value, but not Enterprise Value.<\/p>\n
If Cash changes, Equity Value will change only if the change in Cash was due to common shareholders.<\/p>\n
For example, Net Income generated by the business (flows into Equity), Dividends, Stock Issuances and Repurchases are all changes that affect both Cash on the Assets side and Equity Value.<\/p>\n
In LBOs, you typically ignore Stock Issuances and Repurchases or set them to 0, so Net Income and Dividends are the main relevant Cash-affecting items.<\/p>\n
So, in an LBO, even if a company\u2019s Enterprise Value stays the same, Equity Value keeps increasing as long as the Cash balance keeps increasing due to cash flows from Net Income generated.<\/p>\n
It doesn\u2019t matter how the company uses this Cash balance \u2013 it could repay Debt, or it could let Cash accumulate on its BS, and Equity Value would keep changing in the same way.<\/p>\n
The only restriction is that the company can\u2019t use Cash on core-business Assets, such as PP&E, or Enterprise Value would change.<\/p>\n
This rule breaks down if the company\u2019s EBITDA or EV \/ EBITDA multiple change.<\/p>\n
When that happens, the value of the company\u2019s core-business Assets changes, which means that Total Assets change.<\/p>\n
Change in Total Assets = Change in Core-Business Assets + Change in Non-Core-Business Assets (primarily Cash).<\/p>\n
So, in this scenario, you must factor in *both* sets of changes to calculate the company\u2019s Equity Value each year.<\/p>\n
Change in Equity Value = Change in Core-Business Assets due to Changes in Enterprise Value + Change in Cash Attributable to Common Shareholders (primarily Net Income generated by the business).<\/p>\n","protected":false},"excerpt":{"rendered":"
In this tutorial, you\u2019ll learn how Equity Value and Enterprise Value change in the context of leveraged buyouts, and how it\u2019s possible to earn an acceptable IRR in an LBO even if the company\u2019s core business remains stagnant and its Enterprise Value does not change during the holding period. Table of Contents: 0:00 – Introduction […]<\/p>\n","protected":false},"featured_media":0,"template":"","class_list":["post-23836","biws_kb","type-biws_kb","status-publish","hentry","kb_category-equity-value-enterprise-value"],"acf":[],"_links":{"self":[{"href":"https:\/\/breakingintowallstreet.com\/wp-json\/wp\/v2\/biws_kb\/23836","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/breakingintowallstreet.com\/wp-json\/wp\/v2\/biws_kb"}],"about":[{"href":"https:\/\/breakingintowallstreet.com\/wp-json\/wp\/v2\/types\/biws_kb"}],"wp:attachment":[{"href":"https:\/\/breakingintowallstreet.com\/wp-json\/wp\/v2\/media?parent=23836"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}