Adventis Financial Modeling Certification (FMC) Level 2 Exam Review (Latest 2023/ 2024 Update) Questions and Verified Answers| 100% Correct

Adventis (FMC) Level 2 Exam Review (Latest 2023/ 2024 Update) Questions and Verified Answers| 100% Correct Q: a company sold for $100M and the company being bought had $15M of debt and $2M of cash, what happens and what is the transaction value and purchase price Answer: - the $2M would be used by shareholders of the acquired company to pay down existing $15M in debt to make $13M in debt now (15 - 2 = 13) - the proceeds from the deal would then be used to pay down the remaining debt (EV = CS + PS + Debt - Cash) - Result is 100 - 13 = 87 - TV = $100M - Purchase price = $87 (check to shareholders of acquired company) Q: 2 primary types of relative valuation Answer: 1. comparable company analysis 2. acquisition comparables analysis Q: comparable companies analyses (public trading comparables analyses) Answer: - most common types of relative valuation - these methods allow investors to compare valuation of similar companies by comparing similar ratios Q: most common public trading comparable ratios Answer: 1. EV/EBITDA - compares the total value of a business to its operating profits 2. EV/Revenue - Generally good EV/Sales multiples are between 1x and 3x. Since EV/Sales is a valuation metric, from investor perspective higher value of EV/Sales can be indicative of the "expensiveness" of the valuation of the company. 3. P/E (share price/earnings per share) Difference between 1 and 3 is that P/E doesn't account for Debt. EV/EBITDA may show a more accurate picture since it can determine if a company has a lot of debt that may hinder earnings. Some drawbacks for EV/EBITDA is that it doesn't account for CAPEX - Ex: P/E 20x ( another name is "Earnings Multiple" & "multiple" - Ex: Bill Bike Shop - Price = $60, EPS = $3 P/E = 60/3 = 20x Sam Scooter Shop - Price = $75, EPS = $5 P/E = 75/5 = 15 *This is telling us that the market is currently* valuing the shares of Bill's bike shop at 20 times the amount of their yearly profit so if you were to buy shares in bill's bike shop you would be paying 20 times the amount that they generate in profit Even though sam scooters have a higher price per share they are also generating more earnings for the shares outstanding. What we see is that when we compare the two companies and in apples to apple even though sam's scooter shares are 15 more expensive they actually give you the right to more profits than bill's bike shop does you have the right to five dollars per share with a profit instead of only the three dollars per share in profit the bills bike shop Q: assume a company has $5M of EBITDA and two public companies most similar to the company trade at 6.0x and 7.0x EBITDA, what might you conclude Answer: - Ex: 7.0 = x/5 ; 6.0 = x/5 - can conclude that EV for the company should be between 30-35 million Q: what happens when a company trades at a multiple that is a premium or a discount to the industry average Answer: investors will dig in to understand the rationale Q: assume that a company trades at 7.0x EBITDA but the average of comparable companies is 9.0x, what can we conclude Answer: the company is being undervalued and the investor will look to buy shares because he realizes that the share price will increase Wall St. begins to value the company in-line with its peers Q: acquisition comparables analysis (transaction comparables analysis) Answer: represent comparable acquisitions that have taken place and have been publicly announced Q: are multiples for acquisition comparables higher or lower than mulitples for comparable companies Answer: higher because acquirers need to pay a premium to the current share price to gain control of the company Q: most common type of intrinsic valuation DCF analysis Q: what is DCF analysis Answer: