IFMP Investment Banking and Analysis Certification (IBAC), Pakistan cheat sheet

Enterprise value = equity value (market cap) + total debt + preferred stock + minority interest − cash and cash equivalents; EV is capital-structure neutral and is the correct multiple base for pre-interest metrics.

EV/EBITDA = enterprise value ÷ EBITDA; EV/EBIT = EV ÷ EBIT; P/E = price per share ÷ EPS. Use EV multiples for capital-intensive or levered comparables, P/E only when capital structures and tax positions are similar.

Free cash flow to firm (FCFF) = EBIT × (1 − tax rate) + depreciation and amortization − capital expenditure − increase in net working capital. FCFF is discounted at WACC.

Free cash flow to equity (FCFE) = net income + D&A − capex − ΔNWC + net borrowing. FCFE is discounted at the cost of equity.

WACC = (E/V) × Ke + (D/V) × Kd × (1 − tax rate), where V = D + E. After-tax cost of debt applies only when interest is tax-deductible; Pakistan's corporate tax rate is applied to the shield.

CAPM cost of equity: Ke = risk-free rate + beta × equity risk premium. For Pakistan, the risk-free proxy is typically the 6-month or 10-year PKR government (T-bill/PIB) yield, and a country risk premium is added when the beta is estimated against a developed-market index.

Terminal value (Gordon growth) = FCF in final year × (1 + g) ÷ (WACC − g). Constraint: g must not exceed long-run nominal GDP growth; for Pakistan, nominal growth is high, so nominal PKR discounting and nominal g must be consistent.

Accretion/dilution test: a deal is accretive to the acquirer's EPS when the target's earnings yield (target net income ÷ purchase price, or 1 ÷ P/E paid) exceeds the acquirer's after-tax cost of financing the deal.

Transaction comparables use control premia and synergy-adjusted multiples; trading comparables use minority, market-clearing prices. Applying a control premium of 20–40% to trading multiples is the standard bridge between the two.

Current ratio = current assets ÷ current liabilities; quick ratio = (current assets − inventory) ÷ current liabilities. A quick ratio below 1 signals reliance on inventory or refinancing.

DuPont decomposition: ROE = net profit margin × asset turnover × equity multiplier = (NI/Sales) × (Sales/Assets) × (Assets/Equity). Each factor isolates profitability, efficiency, and leverage.

Altman Z-score (public manufacturers) = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5, where X1 = working capital/assets, X2 = retained earnings/assets, X3 = EBIT/assets, X4 = market value of equity/total liabilities, X5 = sales/assets. Zones: >2.99 safe, 1.81–2.99 grey, <1.81 distress.

Cash conversion cycle = days inventory outstanding + days sales outstanding − days payables outstanding. DIO = 365 × inventory ÷ COGS; DSO = 365 × receivables ÷ revenue; DPO = 365 × payables ÷ COGS.

NPV = Σ CFt ÷ (1 + r)^t − initial outlay; accept when NPV > 0. IRR is the discount rate at which NPV = 0; accept when IRR > hurdle rate. For mutually exclusive projects, NPV ranking governs when IRR and NPV conflict.

Sensitivity and scenario analysis: flex one variable at a time (sensitivity) versus coherent sets of variables (scenario). Break-even analysis solves for the input value at which NPV = 0 or EBIT = 0.

Real versus nominal: if cash flows are forecast in nominal PKR, discount at a nominal PKR rate; if real, use a real rate. Mixing real flows with nominal rates overstates value by roughly the inflation rate.

Bond price-yield relationship: price and yield move inversely; for a given change in yield, price rises more than it falls (positive convexity), and longer duration and lower coupon increase price sensitivity.

Credit analysis ratios: interest coverage = EBIT ÷ interest expense; net debt/EBITDA above roughly 3.5–4.0x typically signals elevated leverage risk, though sector norms vary.