IFMP Investment Banking and Analysis Certification (IBAC), Pakistan flashcards

34 cards. Read the term and the definition here. The deck at the top of this page is optional.

Enterprise value

Market value of equity plus total debt, preferred stock and minority interest, minus cash. It represents the total capital claim on the business and pairs with pre-interest metrics such as EBITDA.

EV/EBITDA multiple

Enterprise value divided by EBITDA. It is capital-structure and tax neutral, making it the preferred multiple when comparing companies with different leverage or depreciation policies.

P/E ratio

Share price divided by earnings per share, or equity value divided by net income. It is meaningful only when capital structures and accounting treatments are broadly comparable across the peer set.

FCFF formula

EBIT times (one minus tax rate), plus depreciation and amortization, minus capital expenditure, minus the increase in net working capital. FCFF is discounted at WACC to derive enterprise value.

FCFE formula

Net income plus depreciation and amortization, minus capital expenditure, minus the increase in net working capital, plus net borrowing. FCFE is discounted at the cost of equity.

WACC formula

Equity weight times cost of equity, plus debt weight times pre-tax cost of debt times (one minus tax rate). Weights use market values of debt and equity where available.

CAPM cost of equity

Risk-free rate plus beta times the equity risk premium. For Pakistan, add a country risk premium when beta is estimated against a developed-market index rather than a local one.

Gordon growth terminal value

Final-year free cash flow times (one plus growth), divided by WACC minus growth. Growth must be below the discount rate and consistent with long-run nominal GDP growth.

Accretion versus dilution

A deal is accretive when the target's earnings yield exceeds the acquirer's after-tax financing cost. Paying a lower P/E than the acquirer's own raises combined EPS.

Control premium

The excess paid over the target's pre-announcement trading price to obtain control. It typically ranges from twenty to forty percent and bridges trading comparables to transaction comparables.

Comparable company analysis

Valuation by applying peer trading multiples, such as EV/EBITDA or P/E, to the target's metrics. Peer selection must match sector, size, growth and margin profile.

Precedent transaction analysis

Valuation using multiples paid in completed M&A deals for similar targets. Multiples embed control premia and expected synergies, so they usually exceed trading multiples.

Leveraged buyout mechanics

Acquisition financed largely with debt secured by the target's cash flows. Returns depend on entry multiple, leverage, EBITDA growth, debt paydown and exit multiple.

Debt covenants

Contractual limits on the borrower, such as maximum net debt to EBITDA or minimum interest coverage. Breach triggers default or renegotiation and constrains dividend and capex policy.

Fairness opinion

An independent adviser's written view that consideration in a transaction is fair from a financial point of view. It relies on multiple valuation methods, not a single price target.

Pitch book

A bank's presentation to a prospective client covering market positioning, valuation analysis, potential transaction structures and comparable deal activity. It supports origination rather than execution.

Current ratio

Current assets divided by current liabilities. It measures short-term liquidity; a value below one indicates current obligations exceed assets expected to convert to cash within a year.

Quick ratio

Current assets excluding inventory, divided by current liabilities. It is a stricter liquidity test because inventory may be slow to sell or subject to write-downs.

DuPont ROE decomposition

Return on equity equals net profit margin times asset turnover times the equity multiplier. It separates profitability, operating efficiency and financial leverage as drivers of returns.

Altman Z-score

A weighted combination of working capital, retained earnings, EBIT, equity value and sales, each scaled by assets or liabilities. Above 2.99 is safe; below 1.81 signals distress.

Cash conversion cycle

Days inventory outstanding plus days sales outstanding minus days payables outstanding. It measures how long cash is tied up between paying suppliers and collecting from customers.

Net present value

The sum of discounted future cash flows minus the initial investment. Accept projects with positive NPV; it measures value added in absolute currency terms.

Internal rate of return

The discount rate at which a project's NPV equals zero. Accept when IRR exceeds the hurdle rate; for mutually exclusive projects, NPV ranking prevails when the two conflict.

Sensitivity analysis

Varying one input at a time to observe the effect on an output such as NPV. It identifies which assumptions most influence valuation but ignores correlation between variables.

Scenario analysis

Testing coherent sets of assumptions, such as base, upside and downside cases, against the model. Unlike sensitivity analysis, it captures variables moving together.

Break-even analysis

Solving for the input value at which profit or NPV equals zero. It defines the margin of safety between the base case and the point of no return.

Real versus nominal cash flows

Nominal cash flows include inflation and must be discounted at a nominal rate. Real cash flows exclude inflation and use a real rate; mixing the two misstates value.

Duration

A measure of a bond's price sensitivity to yield changes, expressed in years. Longer duration and lower coupon mean greater price movement for a given yield shift.

Convexity

The curvature of the price-yield relationship. Because of positive convexity, a bond's price rises more when yields fall than it falls when yields rise by the same amount.

Interest coverage ratio

EBIT divided by interest expense. It shows how many times operating profit covers interest; lower values signal greater dependence on earnings stability to service debt.

Net debt to EBITDA

Total debt minus cash, divided by EBITDA. It is a standard leverage measure; levels above roughly 3.5 to 4.0 times usually indicate elevated leverage risk.

Working capital change

The increase in non-cash current assets minus non-cash current liabilities. Rising working capital consumes cash and reduces free cash flow in the forecast period.

Terminal value share

The portion of total enterprise value attributable to the terminal value. A high share, often above three quarters, signals that most value depends on long-run assumptions.

Return on invested capital

After-tax operating profit divided by invested capital, where invested capital is debt plus equity minus cash. It measures returns against the capital deployed in the business.