Topic2.1 Valuation Foundation Quiz

Why is historical accounting information important for valuation?

• It provides precise forecasts of future cash flows.

• It serves as a starting point for projections and helps validate assumptions about future performance.

• It’s irrelevant because only future projections matter.

• It determines the asset’s value directly without adjustment.

Free Cash Flow (FCF) is calculated as Cash Flow from Operations (CFO) minus Capital Expenditure (CAPEX) minus change in Operating Working Capital (OWC).

• True

• False

How is Operating Cash Flow (CFO) calculated?

• Net Income + D&A

• EBIT * (1 - tax rate) + D&A

• Revenue - Operating Expenses - Taxes

• Cash receipts from customers - cash payments to suppliers and employees

Operating working capital (OWC) is calculated as:

• Total current assets minus total current liabilities

• Operating current assets minus operating current liabilities

• Cash plus accounts receivable minus accounts payable

• Inventory plus accounts receivable minus accounts payable

Which of the following would increase a company's Free Cash Flow (FCF), assuming all else is constant?

• A higher capital expenditures (Capex) requirement

• An increase in inventory level

• An increase in accounts receivable

• An increase in accounts payable

A company is projecting its cash flow for the next year. It expects revenue to be $1,000 million, with CAPEX at 5% of revenue, and an increase in OWC of $10 million. Its CFO for the next year is projected to be $200 million. What is the expected FCF for the next year?

• $200 million - (5% of $1,000 million) - $10 million = $140 million

• $200 million - (5% of $1,000 million) + $10 million = $160 million

• $200 million + (5% of $1,000 million) - $10 million = $240 million

• $200 million + (5% of $1,000 million) + $10 million = $260 million

What is Enterprise Value (EV)?

• Market capitalization of the company

• Total assets minus total liabilities

• Market value of equity plus net debt

• Market value of equity minus net debt

If a company has a market value of equity of $500 million, total debt of $200 million, and cash of $50 million, what is its Enterprise Value (EV)?

• $500 million + $200 million + $50 million = $750 million

• $500 million + $200 million = $700 million

• $500 million + ($200 million - $50 million) = $650 million

• $500 million - $200 million + $50 million = $350 million

How do you convert Enterprise Value (EV) to per-share value?

• EV divided by number of shares

• (EV - Net Debt) divided by number of shares

• (EV + Cash) divided by number of shares

• (EV - Total Liabilities) divided by number of shares

Which of the following is a correct Enterprise Value (EV) multiple?

• EV / Revenue

• EV / Net Income

• P/E

• P/B