04 Aug 2015
Corporate Debt Restructuring

by veristrat

Raising capital through debt financing can be a very attractive option in an environment conducive to business growth. However, excess debt can lead to overwhelming financials problems and place a company’s future in jeopardy in times when the business is struggling. Corporate debt restructuring (CDR) provides an effective solution to enhance liquidity & profitability by establishing fair and equitable debt repayments to creditors.
Corporate debt restructuring is a mechanism by which a company attempts to overhaul its outstanding obligations. The reorganisation of the outstanding debt can be done by: increasing the tenure of the debt, reducing the interest rate, conversion of debt to equity or by conversion of outstanding portion of interest into term loan.

Read More..

29 Jul 2015
Sharpe Ratio; Risk vs. Reward

by veristrat

According to the behavioural portfolio theory an investor is risk averse and will always choose an investment that provides higher return compared to the risk of the investment. One of the most widely relied upon measure of risk and return is Sharpe Ratio, the ratio of expected excess return of an investment to its standard deviation .
Capture
Sharpe ratio was derived in 1966 by William Sharpe; it is very simple and uses only three inputs namely asset return, risk-free return and standard deviation of return. This simplicity has been its biggest advantage and the reason for its popularity. From a risk-return perspective, when analysing an investment, the higher the Sharpe ratio, the more desirable is the investment.

Read More..

14 Jul 2015
EXIT STRATEGIES FOR PRIVATE EQUITY INVESTORS

by veristrat

The entrepreneurs work very hard to make their business a success, but it not only important to build a business worth a fortune but also have an exit strategy which is a way to get your money back. The existence of a viable exit strategy helps the investor in deciding whether or not a company is an attractive investment target. The number of successful exits achieved by a certain private equity house has a strong influence on its ability to attract investors and raise funds.
In this article we discuss various exit strategies that is available and how the management takes a call on choosing the appropriate exit strategy.

Read More..

29 Jun 2015
DISSECTING NON-COMPETE AGREEMENTS

by veristrat

Mergers & Acquisitions have become a common business strategy to consolidate businesses whereby an increase in market share is one of the plausible benefits of the transaction. However, the purpose of the transaction gets defeated if the seller starts a competing venture which can significantly reduce the benefits of the transaction. Therefore, Non- Compete Agreements play a key role in such transactions and are generally signed to ensure the attainment of the desired results from the transaction.
Simply put, a Non- Compete Agreement is an arrangement to the purchase and sale agreement that restricts the seller of a business from competing with that business in the future. Therefore, non-compete clauses help a company safeguard its trade secrets which are highly valuable in establishing competitive advantage. As per one of the CPA publications, a “Non-Compete Agreement” is created for a separate asset sold by the seller to the buyer and when the agreement is included as a term of the asset or stock sale agreement it is called a “Covenant Not to compete.”
image

Read More..

23 Jun 2015
Cash Flow Adjustments for DCF Analysis

by veristrat

As individuals, we make personal decisions based upon the current cash available and expectation of future cash flows. Similarly, company’s current cash balance and future cash flow expectations help investors, managers and creditors take crucial business decisions which may have long lasting implications.
The operating income reported in the financial statements is merely for accounting purpose, and has to be converted to free cash flow which is the actual cash available after adjusting for non-cash charges, changes in working capital and capital expenditure as detailed below:

Read More..

08 Jun 2015
Beta (β) for an Unlisted Company

by veristrat

Valuation practices and guidelines aimed at valuation of unlisted or private companies provide some leverage into estimation of variables to be used in the process. One such grey area is calculation and use of Levered and Unlevered beta.
Levered beta is the beta that contains the effect of capital structure.
beta
Unlevered beta is the beta after removing the effects of capital structure.

Read More..

03 Jun 2015
COMPONENTS OF DISCOUNTED CASH FLOW ANALYSIS

by veristrat

The Discounted Cash Flow Analysis (DCF) is one of the most widely used and accepted methods for calculating the intrinsic value of a company. In simple terms, discounted cash flow tries to work out the value of an asset today, based on projections of all the cash that it could make available to investors in the future. It is often used to evaluate the potential investment opportunities by the management.
The basic equation for DCF is as follows:
Capture
Each of the above mentioned components hold significant contribution in deriving the intrinsic value of the company. Each component is described below.

Read More..

26 May 2015
Discounted Cash Flow Analysis: Pros And Cons

by veristrat

A DCF valuation attempts to get to the value of a company in the most direct manner possible: a company’s worth is equal to the current value of the cash flows it will generate in the future. In this respect, DCF is the most theoretically correct of all the valuation methods as it is the most precise. However, DCF is exceedingly tricky to get right in practice, because it requires making a lot of assumptions about the future, which is always uncertain.
Being one of the most widely used methods of valuation, it will be worth our while to examine the pros and cons of this method.
Prons

Read More..

21 May 2015
Applications Of Capital Asset Pricing Model

by veristrat

The world of finance and valuation is a mix of art and science where every variable utilized has its own significance and a discount rate or required rate of return is one of them. Weighted Average Cost of Capital (WACC) is the discount rate which is used in Discounted Cash Flow analysis which consists of two main components – Cost of Equity and Cost of Debt whereby weights are assigned to them as per the company’s capital structure. As estimation of costs is one of the critical analysis, Capital Asset Pricing Model (CAPM) is one of the approaches utilized to assess Cost of Equity.

Read More..

14 May 2015
RIGHTS ISSUE: A RIGHT OR A TRAP

by veristrat

Once a simple activity of raising capital has today become one of the most complex and carefully thought decision by corporates, during which everything from the cost of capital, return on equity to credit rating is considered before the particular mode is sought. Companies are often trying to raise capital from least expensive resources and Rights Issue is one of them. A Rights Issue is an invitation to existing shareholders to purchase equity shares in the company at a discount to the market price on a future date.
rights issue

Read More..

WordPress Themes
WordPress Themes