You will learn to model salient corporate events such as acquisitions,
leveraged buyouts, public offerings, projects, and securitizations. The
course also covers the necessary accounting details.
This course is highly relevant for bankers, private and public equity
investors, lenders, corporate finance professionals, project financiers,
and consultants. The conceptual, practical, and technical knowledge gained
in this course can give you a significant competitive edge during your
interviews, internships, and jobs.
The salient topics covered are as follows:
Efficient use of Excel to model various types of waterfalls such as debt
waterfall and payments waterfall to various groups (sponsors and
investors) in LBOs and private equity deals
Avoiding and handling iterations
Various measures of free cash flow depending upon the type of analysis
-- valuation, credit risk analysis, credit waterfall
Credit modeling for various types of debt and the credit mindset,
including downside protection and derivatives
How to model an acquisition including step-ups, deferred taxes, and
accretion/dilution
Project finance
An intuitive understand of securitizations
Share-based compensation
Foreign currency transactions and translations
Prerequisites and system requirements
Modeling Financial Statements or Financial Statement Modeling
You need to be in the following systems:
Albert
NYU Brightspace
If you are a non-Stern student, Stern automatically creates a Stern
account for you when registering for a Stern course. Some emails may
be sent to your Stern email, not NYU email. Please forward your
Stern email to your NYU email.
If you are blocked from accessing these systems, please ask the
administration to expedite matters. Given the complexity of these
systems, I cannot manually add you to any system.
Only registered students can attend. I cannot override this NYU rule.
I use my materials. Therefore, no textbook is required, and you need not
purchase anything.
Assignments
The assignments count towards 20% of your grade. They will prepare you
well for the final.
The assignments appear as tests on Almaris. I may update the deadlines
as the course progresses. The deadlines shown at Almaris are the correct
deadlines.
Some assignments are short; others are long. Please manage your time.
NO EXTENSIONS will be granted for any reason except medical or family
emergencies. If you have religious or personal conflicts, please submit
the assignments early. The related materials are covered well in advance
of the assignments. Please do not email me to request extensions unless
you have a medical or family emergency.
You can collaborate with others while doing assignments.
All assignments are mandatory. After the first day of class, you can
view the online assignments at
http://www.almaris.com/assess/
using your official Stern email (no aliases) and the most recent
password emailed to you by Almaris. The Almaris password is different
from the Stern password.
To retrieve the password, use your full email with the domain name as
it appears in Brightspace. The domain name could be @nyu.edu for some
of you, while for others, it could be @stern.nyu.edu. I do not control
this mess.
Assignments are marked “late” if you do not meet or exceed
the passing score described below before the deadline. There is no
additional penalty for lateness other than a low score.
Assignments have a “passing score” of either 100% or less
than 100%.
I set the passing score at 100% if you should ace the assignment. In
reality, there is no passing grade. Whatever you get on your last
attempt is your final score. You are graded on accuracy but not the
number of attempts. There is a difference between
“passing” and getting full credit. If you get 70/100 on
your final attempt, you “pass,” but you do not score
100.
I set the passing score of less than 100% on a few assignments if
you might not get every question right. Any score above that score
is rounded up to 100%. For example, if the passing score is 90%, and
you get 93%, your score is rounded up to 100%. I do the rounding up
in a separate spreadsheet. You will see only the raw score online.
Almaris is not affiliated with Stern in any way. It is offering these
tests to Stern at no charge.
Almaris staff is not authorized to extend deadlines under any
circumstances. Only my TAs can do that. Almaris staff will reply to your
emails only if they pertain to technical issues with the Almaris system.
Please contact Stern IT for technical issues with your network.
Attendance and penalty for missing classes
Requiring attendance is necessary for several reasons. First, you
incorrectly assume you can catch up on a missed class by watching a
recording (if available). Videos do not engage your brain as much as a
live class. Second, less than 20% of you watch the recording (if
available). You are then lost in class, which provides the wrong signals
to me as an instructor. Third, your absence hurts class discussions.
Fourth, you miss out on feedback if you do not work through the questions
I pose in class. Fifth, I lose the feedback since there are fewer
questions.
The policy below will be in effect only after the add/drop
period.
Without mandatory attendance, attendance is often below 50%. Therefore,
though I dislike doing this, I penalize absences. If you anticipate being
absent for good reasons, please email me well in advance. Please enter
"Excused" on the attendance sheet described below to avoid the
penalty if I approve. If you miss a class due to emergencies and cannot
tell me in advance, do not panic. Take care of the emergency first, and
then email me. I will permit you to change the "Absent" to
"Excused." But if you miss a class without a valid reason, there
is a penalty, as stated below.
For sections meeting in 150-190 minute sessions, you will lose one
grade (A to A-, A- to B+, B+ to B, B to B-, and so on) for EVERY missed
session unless you were explicitly excused via email. Thus, if you miss
two class sessions, you will lose two grades, and so on.
For sections meeting in 75-80 minute sessions, you will lose one grade
(A to A-, A- to B+, B+ to B, B to B-, and so on) for EVERY TWO missed
sessions unless you were explicitly excused via email. Thus, if you miss
four class sessions, you will lose two grades, and so on.
Please sit in the same seat in every class and display your name tags. For
Zoom classes, you must keep your video on AT ALL TIMES. You must also have
a good working headset or mic, as it is extremely rude to be inaudible and
force me to ask you to repeat yourself. After entering the class, please
mark yourself present in the first 20 minutes on the OneDrive sheet (link
posted on Brightspace).
You will be marked absent if you are more than 20 minutes late unless it
is because of factors beyond your control (traffic, subway, or
interviews running late). You will also be marked absent if you leave
the class early unless you have my permission or get it afterward. You
will get an F in the course if you are caught cheating on the attendance
sheet.
Exams and Grading
If you have a qualified disability and require academic accommodation
during this course, please contact me directly. I will arrange a
separate room/time for you.
Grading
Please read about the penalty for missing classes above.
Assignments: 50%. You need not get a full score on the assignments;
any score above 80% is considered a passing score.
Final exam: 50%
Your exam will consist of one or more spreadsheets.
Your score on each spreadsheet will be max(attempt1, attempt2 - 7,
attempt3 - 14, attempt4 - 21, attempt5 - 28).
If you want us to manually grade your incomplete or incorrect
spreadsheet, submit it within FIVE MINUTES of the end of the exam. Do
not email it; look for File Exchange in the left-hand menu bar on NYU
Brightspace. If you submit the spreadsheet for manual grading, you will
be considered to have used up your five attempts. Therefore, your
maximum score on that spreadsheet can only be 72/100 due to the penalty
for multiple attempts.
Important computer tips for the final
DO NOT WORK ON A SPREADSHEET WITHIN A BROWSER. Save the spreadsheet to
your desktop, work on it, and save it periodically. If you navigate away
from the spreadsheet in a browser,
ALL YOUR WORK WILL BE LOST.
Restart your computer before the exam to minimize problems.
Bring an external mouse with a scroll wheel to speed up test-taking. Do
not waste time using the trackpad or the internal mouse.
Maximize screen space by hiding the Excel ribbon and browser menus. The
more the screen you see, the faster and more accurate you are.
Bring a computer with as big a screen as possible.
Organize your computer files and designate a directory to save your exam
files.
A detailed document is provided in the course materials. It lists the
sequence of topics, related pages from the materials, related
spreadsheets, and related assignments. The outline below is a summary.
1. Acquisitions: Identifying and modeling synergies
Revenue-related synergies
Joint customers
Joint channels
Complementary products
Access to new geographic markets
Speed of build-out
Shared branding
Marketing talent
Blocking competitive entry
Expense-related synergies
Redundant resources
Improved capacity utilization
Management talent
Access to cheaper debt
Tax synergies: Covered briefly; details covered in the tax course
2. Acquisitions: Modeling consideration paid and acquired assets
Consideration paid
Components of purchase consideration
Cash paid
Debt assumed
Equity issued
Contingent consideration: Equity-classified and liability-classified
earnouts
Replacement stock awards issued to employees
Premium paid
Understanding premium over book value versus premium over market
value
Modeling control premium
Modeling acquired assets
Trading, available-for-sale, and held-to-maturity securities: Difficulty
of valuing Level III securities
Receivables and allowances: Misleading days of receivables and allowance
ratios after an acquisition
Raw materials, work-in-process, and finished goods inventories:
Misleading gross margin and days of inventory ratios after an
acquisition
PP&E: Distorted accumulated depreciation to gross PP&E ratios
after an acquisition; distorted PP&E turnover after an acquisition
Favorable leases and contracts
Intangible assets
Brands and trademarks
Customer relationships
Deferred tax assets are covered in the next section
Modeling acquired pre-tax liabilities
Accounts payable and accrued expenses: Misleading days payable after an
acquisition
Deferred revenues: Understated future revenues, misleading days of
deferred revenues
Unfavorable contracts
Modeling deferred tax liabilities and assets
Book basis versus tax basis in acquisitions and resulting deferred tax
assets and liabilities
Goodwill
What goodwill represents
3. Acquisitions: Drivers of accretion and dilution
Modeling the effect of fresh-start accounting on post-combination
financial statements
Drivers of EPS accretion/dilution
Synergies
Relative pricing
Accounting step-ups
Integration costs
Commonly used non-GAAP measures and their pitfalls
4. Leveraged buyouts: Modeling changes in capital structure
Identifying LBO targets
Borrowing capacity
Superior management and cost controls
Capital structure optimization and investor groups with higher risk
tolerance
Debt market considerations
Target pricing
Modeling sources of financing and their waterfall
Bank debt
ABL facilities
Revolving credit facilities
Term loans A, B, and C; Balloon, bullet, and amortizing loans
2nd Lien loans
Public debt
Senior notes
Senior subordinated notes [See advanced structures such as PIKs and
converts below]
Equity contribution
Rollover equity
Cash on hand
Modeling exit strategies and multiples
Exit via an IPO
Sale to a strategic buyer
5. LBO: Modeling advanced debt and equity structures
Modeling Payment-in-Kind bonds
Applicable High Yield Discount Obligation (AHYDO) Rules
Modeling convertible debt
Modeling interest rate and currency swaps
6. Bankruptcies
Modeling fresh start accounting and new capital structure after a
bankruptcy