Enterprise Value Multiples
Enterprise value (EV), often viewed as the cost of a takeover, is most frequently determined as market capitalization plus the market value of preferred stock plus the market value of debt minus cash equivalents and short-term investments. EV/EBITDA EBITDA (earnings before interest,…
Asset-based Valuation Models
An asset-based valuation of a company uses estimates of the market or fair value of the company’s assets and liabilities and, thus, is most appropriate for companies with a high proportion of current assets and current liabilities and few/insignificant intangible…
Categories of Valuation Model
Free Cash Flow to Equity (FCFE) Model Advantages: aims to calculate a company’s capacity to pay future dividends, going beyond simply discounting expected dividends. This approach may provide a more useful valuation, especially when the company does not pay dividends…
CFA Level 1 Study Notes – Corporate Issuers
CFA Level 1 Study Notes 2020 Reading 31- Corporate Governance and ESG: An Introduction – LOS a : describe corporate governance – LOS b: describe a company’s stakeholder groups and compare interests of stakeholder groups – LOS 31c: describe principal–agent…
CFA Level 1 Study Notes – Alternative Investments
Study Session 17 Reading 47 (2022) – Introduction to Alternative Investments -LOS 47a: describe types and categories of alternative investments; -LOS 47b: describe characteristics of direct investment, co-investment, and fund investment methods for alternative investments; -LOS 47c: describe investment and…
Alternative Investments vs. Traditional Investments
Traditional Investments Every possible investment choice is either an alternative or a traditional investment. Traditional investments are: long-only, publicly traded investments in stocks; long investments in publicly traded bonds; or cash. Traditional is not a synonym for “common,” and neither…
Categories of Alternative Investments
With no true consensus as to any “official” categories of alternative investments, it’s still useful to present a list to aid in your understanding. Hedge Funds are private equity funds that hold a variety of traditional and alternative assets, long-and-short…
Potential Benefits of Alternative Investments
Diversification is a well-known strategy used to improve returns and lower risk. Alternative investments manifest different characteristics and returns compared to traditional investments. Illiquidity in the underlying investments is common. A low correlation of returns with traditional investments offers opportunities…
Description of Alternative Investments
Hedge Funds Hedge funds employ strategies to offer their investors absolute returns (net of fees and taxes). These private funds are actively managed (often by “star investors”) and employ aggressive strategies across asset classes. Many will use derivatives, high leverage,…
Hedge Fund Fees
Management and Incentive Fees Hedge fund fees are usually two-fold: management fees and incentive fees. For example, a “2 and 20” fee structure bills a client 2% of funds under management as an annual fee and takes 20% of the…
