Monthly Archives: April 2022

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If Company A is 30% equity, 70% debt currently, but will have a capital structure of 50% equity, 50% debt in year 5, which capital structure do you use for your DCF?

The 50/50% capital structure would be used. When calculating WACC, we assume the optimal target capital structure, which is the capital structure the company will have in the long term and the optimal capital structure for a company in that industry....
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What are some key debt metrics, and why are they important?

The leverage multiple, debt / EBITDA, is a common metric comparing debt and EBITDA. EBITDA is a proxy for cash flow that can be used to pay back the debt. It’s also a measure of the core profitability of the business that remains neutral in terms of capital structure, tax jurisdiction, and account...
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Do private equity companies add more value to portfolio companies through financial engineering or operational improvements?

Operational improvements adds more value as the impact is far more permanent than temporarily playing around with the capital structure. Strategic shifts or operational improvements may last a lifetime, while capital structure changes and financial engineering will only affect the company until the ...
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