Balance Sheet Assets Balance sheet assets are listed as accounts or items that are ordered by liquidity. Liquidity means the ease with which a firm can convert an asset into cash. The most liquid asset is cash (the first item on the balance sheet), followed by short-term deposits and accounts receivable. The most illiquid (not...
Accounting Principles A fundamental understanding of accounting principles is critical to creating any meaningful financial analysis. Before diving into a complicated analysis of mergers and acquisitions, a weak foundation in accounting will undoubtedly lead to failure. We build from the beginning and try to summarize and explain accounting principles in simple terms. Therefore, we begin...
Estimating Free Cash Flow To arrive at a Discounted Cash Flow (DCF) valuation, we split our model into a visible forecast period (typically 3 to 5 years) and terminal value period. Both of these segments of the model require estimating free cash flow in the future. Why discounted cash flows? We are interested in estimating...
DCF with Terminal Value Calculation This guide will break down the steps required to perform a DCF with terminal value calculation. This guide is an excerpt from CFI’s free Investment Banking Training Manual. Steps for Doing a DCF with Terminal Value Calculation Separate cash flows into: Visible cash flow period (5 to 10 years on...
Balance Sheet Liabilities Balance sheet liabilities are obligations the company has to other parties and are classified as current liabilities (settled in less than 12 months) and non-current liabilities (settled in more than 12 months). #1 Balance Sheet Liabilities – Current Accounts Payable Accounts payable is the most common of all non-current...
