Breaking Into Finance

How big is a Ford Motor Company? By "market cap" (aka market capitalization aka equity value) it's ~$47 billion, but that measure of size doesn't take into account their debt! In fact, Ford's enterprise value is well over $100 billion. In this episode, we tackle the difference between equity value and enterprise value, and why enterprise value if market cap is quoted so much more frequently. Related topics we discuss include net debt, capital structure decisions and some valuation ratios including P/E (which uses equity value) and EV/EBITDA (where EV stands for enterprise value).

As we ramp up our valuation skills, this Q&A session helps orient listens around both the most important metrics for valuing assets, as well as which (different!) historical metrics are the best predictors of value

In this episode, Olivia, Blaise and Craig do a deeper dive on the components of a Discounted Cash Flow (DCF) model. In the second half of the video, we review a sample interview question that investment banking applicants are often asked during interviews.

This is a continuation from Episode 19, where we introduce the concept of the DCF model and how to calculate a company's Weighted Average Cost of Capital (WACC), which is commonly used as the discount rate in a DCF model.

Link to video recording: https://youtu.be/5TulszW9g7M

In this episode we discuss Spotify's Q2 2023 earnings report. We break down the nitty gritty on how to use a company's financial statements to go one level deeper than the news headlines and understand what's actually going on at the business.

Link to video with screenshare: https://youtu.be/24b0wyA1bq4

Link to Spotify investor presentation: https://www.sec.gov/Archives/edgar/data/1639920/000114036123035965/brhc20056303_ex99-1.htm

All our hard work is about to start paying off! Now that we've talked in detail about companies and their financials, we're ready to talk about valuation. In the first of several valuation-focused episodes, we introduce the concept of the Discounted Cash Flow (DCF) model, and the what/when/why/how of discounting future money. To do this, we do a deep dive on calculating a company's cost of capital and introduce the concept of Weighted Average Cost of Capital (WACC).

A short current events piece drawing on reporting from Matt Levine at Bloomberg. We break down the ramifications of rising rates for highly levered companies (companies with a lot of debt relative to their EBITDA). This is a concrete example of how understanding the impact of debt on profitability is an important concept for young analysts.

On this episode Craig and Olivia answer your questions on topics that we've covered thus far. We cover a variety of topics including why the balance sheet needs to balance, how to calculate retained earnings, converting EBITDA to net income, key income statement metrics and how net working capital affects cash flow projections.

How did the US Government make a $6 billion accounting error with real life and death consequences? In the episode we give a helpful reminder that seemingly written-in-stone dollar figures can often be subject to caveats and interpretation.

In this episode, we build on last episode's discussion of working capital components. We work through a few examples to illustrate the impact of working capital on a business and discuss what real-world activities might lead to changes in working capital. We also talk about relationships between real-world business strategy issues like how poor inventory management can manifest in high balance sheet inventory, which causes a drag on cash flow generation. This episode also has a YouTube recording (https://youtu.be/VPn_3pgfZvg), but it's much less critical than the last episode.

In this episode we introduce the concept of working capital, it's components, and why it is an hugely important component of financial modeling and forecasting. Link to video version, which includes a short powerpoint presentation that lays out various definitions and terms: https://youtu.be/IsJCoYomtrs