BIWS 400 Exam Questions with Correct Answers| New Update 100% Verified by Experts
How do the three statements link together? 1. Starting off with the income statement, the
bottom-line net income flows into the top of the cash flow statement.
2. Then on the cash flow statement, we adjust this net income number for non-cash charges,
like depreciation and amortization.
3. Next, we reflect changes to operational balance sheet items like accounts receivable, which
gives us cash flow from operations.
4. Next we include cash flow from investing and financing activities, which may increase or
reduce cash flow, and sum up cash flow from operations, investing, and financing to get net
change in cash at the bottom.
5. This net change in cash at the bottom of the CFS becomes the cash at the top of the balance
sheet. Additionally, we're going to link the separate line items on the CFS to their corresponding
Balance Sheet line items. For example, Capital Expenditures and depreciation link into net
PP&E.
6. Also, stock issuances, stock repurchases, stock-based compensation, and dividends from the
financing section of the cash flow statement link into the shareholders equity section of the BS.
7. Finally, take out increases in net working capital and check that A = L + SE at the end.
Walk me through a DCF? 1. A DCF values a company based on the Present Value of its
forecasted Cash Flows plus the Present Value of its Terminal Value.
2. First, You start by projecting the company's Free Cash Flows over the next 5-10 years by
making assumptions for revenue growth, margins, Working Capital, and CapEx. Then, you
discount the cash flows using the Discount Rate, usually the Weighted Average Cost of Capital,
and sum up everything.
3. Next, you estimate the company's Terminal Value using the Multiples Method or the Gordon
Growth Method; it represents the company's value after those first 5-10 years. You then
, discount the Terminal Value to Present Value using the discount rate and add it to the sum of
the company's discounted cash flows.
4. Finally, you compare this Implied Value to the company's Enterprise Value, and you'll often
calculate the company's Implied Share Price so you can compare it to the Current Share Price.
How to calculate WACC? [ Cost of Equity X Percentage of Debt ] + [Cost of Debt X Percentage
of Debt] X (1 - Tax Rate)
How do you get Revenue from Unlevered FCF 1. Revenue - opex = Operating Income
2. Multiply by (1 - Tax rate)
3. Add back depreciation and amortization + adj for changes in NWC
Difference between Unlevered FCF and Levered FCF Levered FCF is the amount of cash a
business has after it has met its obligations, whereas unlevered FCF is before the business has
paid off its financial obligations
Why do we use Unlevered FCF in a DCF? We use Unlevered FCF to compare companies with
different capital structures in a DCF. Unlevered FCF does not account for debt, so it is perfect
for this.
Unlevered FCF Calculation? 1. Revenue - Opex = EBIT
2. Multiply by (1 - Tax rate)
3. Add back depreciation and amortization + adj changes in NWC
4. - Capex
How do the three statements link together? 1. Starting off with the income statement, the
bottom-line net income flows into the top of the cash flow statement.
2. Then on the cash flow statement, we adjust this net income number for non-cash charges,
like depreciation and amortization.
3. Next, we reflect changes to operational balance sheet items like accounts receivable, which
gives us cash flow from operations.
4. Next we include cash flow from investing and financing activities, which may increase or
reduce cash flow, and sum up cash flow from operations, investing, and financing to get net
change in cash at the bottom.
5. This net change in cash at the bottom of the CFS becomes the cash at the top of the balance
sheet. Additionally, we're going to link the separate line items on the CFS to their corresponding
Balance Sheet line items. For example, Capital Expenditures and depreciation link into net
PP&E.
6. Also, stock issuances, stock repurchases, stock-based compensation, and dividends from the
financing section of the cash flow statement link into the shareholders equity section of the BS.
7. Finally, take out increases in net working capital and check that A = L + SE at the end.
Walk me through a DCF? 1. A DCF values a company based on the Present Value of its
forecasted Cash Flows plus the Present Value of its Terminal Value.
2. First, You start by projecting the company's Free Cash Flows over the next 5-10 years by
making assumptions for revenue growth, margins, Working Capital, and CapEx. Then, you
discount the cash flows using the Discount Rate, usually the Weighted Average Cost of Capital,
and sum up everything.
3. Next, you estimate the company's Terminal Value using the Multiples Method or the Gordon
Growth Method; it represents the company's value after those first 5-10 years. You then
, discount the Terminal Value to Present Value using the discount rate and add it to the sum of
the company's discounted cash flows.
4. Finally, you compare this Implied Value to the company's Enterprise Value, and you'll often
calculate the company's Implied Share Price so you can compare it to the Current Share Price.
How to calculate WACC? [ Cost of Equity X Percentage of Debt ] + [Cost of Debt X Percentage
of Debt] X (1 - Tax Rate)
How do you get Revenue from Unlevered FCF 1. Revenue - opex = Operating Income
2. Multiply by (1 - Tax rate)
3. Add back depreciation and amortization + adj for changes in NWC
Difference between Unlevered FCF and Levered FCF Levered FCF is the amount of cash a
business has after it has met its obligations, whereas unlevered FCF is before the business has
paid off its financial obligations
Why do we use Unlevered FCF in a DCF? We use Unlevered FCF to compare companies with
different capital structures in a DCF. Unlevered FCF does not account for debt, so it is perfect
for this.
Unlevered FCF Calculation? 1. Revenue - Opex = EBIT
2. Multiply by (1 - Tax rate)
3. Add back depreciation and amortization + adj changes in NWC
4. - Capex
