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Big4WallStreet Finance Blog

Management Accounting

accounting break even analysis budgeting controlling cost decision making finance management accounting planning

1.           Intro to Management Accounting a.    Definition  “Management accounting is a system which analyses historical, actual and forecast data to provide managers the information for decision making.”    b.   The management accounting department The department provides management information for:  Planning: budget for the year, budget updates during the year, long term plan beyond the year.  Controlling: how do the revenues and costs compare with the budgeted ones and those of the previous periods. What are the variances? What are the reasons for the variances?  Decision Making: profitability assessment, buildup of selling prices, product costs comparisons (inventory, manufacturing, labor etc..), make...

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Financial Modeling 101

#financial modeling corporate finance equity research excel investement banking model

Definition of financial modeling

A financial model is an excel spreadsheet that projects the 3 financial statements of a business into the future. The three financial statements are the income statement, balance sheet, cash flow statement which are based historical data and expected value drivers.

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Valuation Pitfalls

discount rates growth pitfall valuation

The difficulty of a valuation does not focus on how to find and apply any of the chosen methods, but rather on the ability to predict the future. In practice what is valued is the business model, the company strategy, the attraction of its products, its prospects and its risks.

Below we outline a series of pitfalls common among analysts and investors related to the valuation of a company.

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Weighted Average Cost of Capital

Capital Asset Pricing Model capital structure CAPM Cost of Debt Cost of equity country risk premium CRP Leverage WACC Weighted average cost of capital

The weighted average cost of capital (“WACC”) is the rate of return that investors expect from investing in a given company instead of other companies with similar risk125. The WACC can be calculated by determining its three components: the after-tax cost of debt, the cost of equity and the company’s target capital structure126.

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Valuation Methods: The Valuation Process

discounted cash flows fair value free cash flows to equity free cash flows to the firm going concern value intrinsic value investment value valuation

The Valuation Process Definitions of value Several value definitions serve as the foundation for the variety of valuation models available to the comparison of equity valuation methods, such as intrinsic value, going-concern value, liquidation value, and fair value. Intrinsic Value The intrinsic value of any asset is the value of the asset given a hypothetically complete understanding of the asset’s investment characteristics. The intrinsic value suggests that an asset’s market price is the best available estimate of its intrinsic value. Going-Concern Value and Liquidation Value In estimating value, a going- concern assumption is the assumption that the company will continue...

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