Wall Street Prep Financial Modeling Exam Questions And Answers 100% Correct |

When valuing a company using multiples, what are the tradeoffs of using LTM vs. forward multiples? {Ans: Using historical (LTM) profits have the advantage of being actual results. This is important because EBITDA, EBIT and EPS forecasts are subjective. This is particularly problematic for smaller public firms, whose guidance tends to be less reliable and generally harder to come. That said, LTM suffers from the problem that historical results are often distorted by nonrecurring expenses and income that were recognized during the period and distort the picture of recurring operating performance. That's why when using LTM results it is important to exclude nonrecurring items to get a clean multiple. That's why both LTM and forward multiples are often presented side by side, rather than picking just one.}How would you value a company that has no revenue? {Ans: A company that has no revenue can still be valued by valuing drivers like subscribers, monthly active users.}Walk me through an LBO. {Ans: A leveraged buyout is similar to purchasing a house. The purchase price is funded partially by an equity investor - which is the private equity firm also called the financial sponsor. The remainder is funded through loans