Exam (elaborations)
CEPA Terms - Session 2: Questions & Detailed Answers
- Course
- Institution
CEPA Terms - Session 2: Questions & Detailed Answers
[Show more]
Content preview
CEPA Terms - Session 2: Questions & Detailed AnswersWhat is a Triggering Event? Right Ans - A Personal, Financial, Business
assessment correlated to the business Range Of Value.
What are benefits of a Triggering Event? Right Ans - •Establishes the
present & best in class business values
•Predicts the probability of succeeding with growth and transition strategies
•Identifies the PROFIT GAP
•Identifies the VALUE GAP
•Identifies ACTIONS needed to protect, build and harvest value
What is the equation behind Strategic (Present) Value = Simple Math Right
Ans - R/EBITTDA x Market Multiple = Value
or
R/Sales x Market Multiple = Value
What is a businesses Tax Number when it comes to valuation? Right Ans -
•This is the number that displays on the financial statements
• It is the number presented to tax authorities
•Usually, the objective is to minimize this number for tax purposes
•Assets are written down to book value
What is a business Real Number when it comes to valuation? Right Ans -
•This number is calculated by adjusting the financial statements; called
Financial Recasting
• It reflects the most likely earnings and balance sheet of an ongoing concern
• Tangible assets adjusted to market value upon transfer (NOTE: does not
include intangibles)
• The objective is to maximize this number for wealth creation
What does EBITDA stand for? Right Ans - EBITDA: Earnings Before Interest
Taxes Depreciation Amortization
What is Recasted EBITDA? Right Ans - Market's measure of earnings being
generated from ongoing, normalized operations. Needs to be normalized.
Balance Sheet adjustments may include inventory write offs, A/R write offs,
asset write offs, debt payoffs (inter-company or owner/employee).
, The Range of Value Market Multiple is determined by ______________. Right
Ans - The ROV multiple is determined by the Private Capital Market - you can't
control this.
What two factors determine where you land in the Range of Value? Right
Ans - Attractiveness and Readiness Scores, as well as Financial Benchmarking,
determines where you land in the ROV.
What is a businesses attractiveness score? Right Ans - How attractive the
business appears from a third-party point of view.
What is a businesses readiness score? Right Ans - How ready the owner
and the business are to transition and scale. It is not the decision to sell or
grow. It is a state of fact, not a state of mind.
What are common issues that hinder readiness ahead of a transition? Right
Ans - Personal, Financial, Valuation (buyer v. seller), Credibility of financial
information, Management/ key employee retention, Customer Concentration,
Power to Sell/ Offer Shopping, Deal Breakers
What is a business owner's Wealth Gap? Right Ans - Difference between
net worth (only excludes business value), and ideal wealth goal.
What is the rule of 4 when it comes to computing a business owner's ideal
wealth goal? Right Ans - We should assume 4% of wealth goal will suffice
annually until end of life.
What is the Profit Gap? Right Ans - Best In Class recasted EBITDA less
business present recasted EBITDA.
What is the Value Gap? Right Ans - Best In Class Strategic Value less
business present Strategic Value.
Remember: Strategic Value = Simple Math!
R/EBITDA x Multiple = Value
What is the definition of overall Business Value? Right Ans - The Economic
Benefit Stream of a Whole Business. Includes Tangibles and Intangibles (the 4
Cs).
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller LeCrae. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $9.99. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
75323 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now