Wall Street Oasis - Technical Guide Questions with Correct Verified Answers A+ Graded

Wall Street Oasis - Technical Guide Questions with Correct Verified Answers A+ Graded Describe the steps to an M&A Deal - ANS 1. Acquisition Strategy - develop business needs and purpose for carrying out an acquisition. 2. Acquisition Criteria - establish the acquisition search criteria for determining viable targets. 3. Target Search - search for viable acquisition targets using search criteria. 4. Acquisition Planning - reach out to viable targets that would add value to the firm. Have conversations to assess acquisition feasibility. 5. Valuation Analysis - using target's financial information, advisors and acquirer will conduct valuations to further evaluate profitability of transaction. 6. Negotiations - construct a reasonable offer and arrive at a negotiated price. 7. M&A Due Diligence - exhaustive process that aim's to evaluate the acquirer's assessment of the target's value through detailed analysis. 8. Purchase & Sale Contracts - assuming no major problems arise, a final contract for sale is executed (asset purchase, share purchase, etc.). 9. Financing Strategy - details of financing the deal come together after sale and purchase agreement are signed. 10. Closing & Implementation - management teams work on integrating the target and acquirer. The 3 Financial Statements and Connections Between Each One - ANS *Balance Sheet* The balance sheet shows a company's *assets, its liabilities and shareholders' equity*. It is a snapshot of a company at one point in time. *Income Statement* The income statement outlines the company's Revenues and Expenses. It shows their profit and loss over a period of time. B/S and I/S Connections: 1) Interest Expense is calculated based on debt held on B/S 2) Revenue and Expense accounts at the end of a reporting period are closed (zeroed) out with the net debit (loss) or credit (profit) adjusted to the retained earnings account in the equity section of the B/S 3) Depreciation and Amortization is calculated based on property, plant, and equipment (PP&E) from the Balance Sheet. A $10 increase in depreciation expense will result in a $10 reduction in net PP&E and a $10 x (1-T) decrease in net income. *C/F Statement* The cash flow statement uses information from both B/S and I/S to show the cash flows from operating, investing and financing activities over a PERIOD OF TIME. C/F connections to I/S & B/S 1. Net Income is the first line of the statement of cash flow in the indirect method 2. Adjust for non-cash items (i.e., depreciation, amortization, unrealized gains/losses, goodwill impairments, asset write-downs, etc.) from the Income Statement. 3. Indirect method => The changes in B/S line items are analyzed to determine if they are a source or use of cash. 4. Beginning Cash on the CF Statement is cash from the prior period's Balance Sheet, and Ending Cash on the CF statement is Cash on the current period's Balance Sheet. Income Statement Overview - ANS Net income is the beginning point for the Cash Flow statement. Interest expense on the Income Statement is calculated from the debt on the Balance Sheet. Depreciation and Amortization is calculated based on property, plant, and equipment (PP&E) from the Balance Sheet. A $10 increase in depreciation expense will result in a $10 reduction in net PP&E and a $10 x (1-T) in net income. Net income minus dividends paid = addition to retained earnings on the Balance Sheet. Cash Flow Statement Overview - ANS Organized into Cash Flow from Operations, Investing, and Financing. Net income is the one of the first lines and comes from the Income Statement. Adjust for non-cash items (like Depreciation and Amortization) from the Income Statement. Adjust for change in working capital, which is calculated from changes in current assets and current liabilities on the Balance Sheet. (More information on changes in working capital is presented later in this Guide.) One of the final lines will be change in cash. Beginning cash (which comes from prior period's Balance Sheet) plus change in cash yields ending cash balance on the current period's Balance Sheet. Balance Sheet Overview - ANS Debt is affected by Cash Flow from financing, which would include any mandatory amortization of debt, optional amortization, repayments, new debt issuance, etc. Cash balance is determined from the Cash Flow statement as described above. Assets like PP&E and goodwill are reduced in value by depreciation and amortization. Retained earnings is increased/decreased by net income minus dividends paid as described above Financial Statements Summary S