ADVENTIS LEVEL2 Questions 2024/2025 With Correct Answers

Relative Valuation - right answer--Methods that compare the price of a company to the market value of similar assets. Two primary types of relative valuation are comparable company analysis and acquisition comparables analysis. Intrinsic Valuation - right answer--Refers to the value of a company through fundamental analysis around its ability to generate cash flow. The most commonly used method of intrinsic valuation is the discounted cash flow ("DCF") analysis. Transaction Value vs. Purchase Price - right answer--In an M&A context, Enterprise Value is analogous to the Transaction Value and Equity Value is analogous to the Purchase Price. To illustrate how this works, assume there is a press release that says a company sold for $100M. Furthermore, in the press release the company being bought had $15M of debt and $2M of cash. Regardless of how much debt or cash the acquired company had, it should still be worth $100M. The shareholders of the acquired company would take the $2M of cash to pay down remaining debt, leaving $13M in debt. Then they would use the proceeds from the deal to pay down the remaining debt. The result would be $87M (the $100M transaction value less the $13M in net debt). The $87M represents the purchase price of the transaction (i.e. the "check" to shareholders of the acquired company). Comparable Companies Analysis - right answer--Comparable companies analyses (or public trading comparables analyses) are the most common type of relative valuation analyses utilized for companies. These methods allow investors to compare the valuation of similar companies by comparing similar ratios. The most common ratios are Enterprise Value / EBITDA, Enterprise Value / Revenue and Equity Value / Earnings (often calculated as Share Price / Earnings per Share). Assume a company has $5M of EBITDA and the two publicly held companies that are most similar to the company trade in the market at 6.0x and 7.0X EBITDA. Using these multiples, you might conclude that the company's Enterprise Value should be worth $30M - $35M. Additionally, when a company trades at a multiple that is a premium or discount to the industry average, investors will often dig in to understand the rationale. Assume that a company trades at 7.0x EBITDA but the average of comparable companies is 9.0x; absent any significant business challenges, an investor may come to the conclusion that that company is undervalued and look to buy shares, realizing that the share price will appreciate if/when Wall Street begins to value the company in-line with its peers. Acquisition Comparables Analysis - right answer--Precedent transaction analysis is a valuation method in which the price paid for similar companies in the past is considered an indicator of a company's value. Precedent transaction analysis creates an estimate of what a share of stock would be worth in the case of an acquisition.