Search results “What is leveraged debt”
Leveraged Finance
Leveraged finance means using large amounts of borrowed money to buy something. Probably the most common use of leveraged finance is when a private equity firm uses it to buy another company. This short video explains how it all works.
Views: 34921 paddy hirsch
Killik Explains: Could leveraged loans trigger a debt crisis?
Leveraged loans are a new type of debt that has taken the corporate world by storm recently. Tim Bennett looks at how they work and the key risks. To Receive Tim’s videos straight to your inbox, click here: http://bit.ly/2ypa6S8 Download Tim's educational guides here: http://bit.ly/2yD1PKP Follow us on LinkedIn: http://bit.ly/2DgsylS Follow us on Twitter: http://bit.ly/2PSWNRc Follow us on Instagram: http://bit.ly/2QLehQE
Views: 1282 Killik & Co
What is a leveraged loan? Senior secured credits explained ...
Leveraged loans, explained by Paddy Hirsch: Seniority, security, and why those participating in the market hope for a profitable yet less-bumpy investment ride. For more news, analysis, and trends on the leveraged loan market check out http://www.leveragedloan.com, a free site powered by S&P Capital IQ/LCD to promote the asset class. LeveragedLoan.com also features the Leveraged Loan Market Primer/Almanac, a free guide detailing quarterly market and historical trends, as well as market mechanics. http://http://www.leveragedloan.com/primer/ Follow LCD Twitter http://www.twitter.com/lcdnews Facebook https://www.facebook.com/lcdcomps LinkedIn https://www.linkedin.com/grp/home?gid=2092432 Follow Paddy Hirsch http://www.twitter.com/paddyhirsch
Views: 19525 LCDcomps
I’m over $1 MILLION in Debt (Lessons of Leverage in Business and Real Estate)
I’m over $1 MILLION dollars in debt, and here’s why this is actually a GOOD thing and how you can leverage debt can make you more money. Enjoy! Add me on Snapchat/Instagram: GPStephan Learn how to start and grow your career as a Real Estate Agent to a Six-Figure Income, how to best build your network of clients, expand into luxury markets, and the exact steps I’ve used to grow my business from $0 to over $120 million in sales: https://goo.gl/UFpi4c Join the private Real Estate Facebook Group: https://www.facebook.com/groups/therealestatemillionairemastermind/ So here’s why I’m a million dollars in debt - there’s a big difference between good debt and bad debt. The reality is that almost every successful business, at some point, needs leverage if it’s to grow exponentially…especially in real estate…and how you manage debt could either make or ruin you. Think of debt a like fire. Fire could give you warmth, cook your food, bring you light…or it could burn you. Debt is very similar. I grew up in a family that was wrecked by debt…I grew up thinking debt was awful and that credit cards were the worst thing ever. But as I began to associate with people who were just insanely wealthy, I realized…these were people who weren’t afraid of debt. They embraced it and worked the system to their advantage. Bad debt: This is when borrow money to buy stupid things that depreciate in value and doesn’t make you money. I shouldn’t even need to explain it because this is pretty self explanatory. Good debt is money that you borrow to make you more money. Good debt is used as a tool to increase your cash flow by borrowing money at a cheaper rate than your money makes you. And right now, we’re at the end of an opportunity of borrowing cheap money - that’s why I’m trying to grab as much as I can while rates are still overall relatively low. This is why I’m over a million dollars in debt…I have one 30-year loan at 3.375% interest rate, and another one at 4.5% interest rate…my investments make way more than this, and I’m able to profit the difference. It allows me to invest way more long term and increase my cash flow. This is also why there’s absolutely no reason for me to pay this down early…I can pretty much invest my money anywhere and get higher than a 4.5% return, so it makes sense to invest my money than pay down low-interest, tax deductible debt. So what does this mean for YOU and how can this help YOU? Knowing the difference between good and bad debt will help you evaluate what you can do to maximize your profits and the amount of money you make. If you’re borrowing $10,000 at a 5% interest rate, but your money is making you 10% elsewhere…that’s a no brainer. Borrow the money, make 10%, pay 5% in interest, and you’ve just got a “Free” 5% without using your own money. This is basic real estate 101, but it also applies to just about any business. The tricky part, from my perspective, is when you start borrowing money in the 6%+ bracket. The higher your interest rate, the tighter the margins, and the more closely you need to evaluate if it’s worth it. If you’re borrowing in the higher tiers, you need to be absolutely sure you’ll be making a higher return and that it’s sustainable…at a certain point, it becomes more advantageous to pay down debt than re-invest. If I had an 8% loan, you bet I’d be aggressively paying that down as much as I can…but a 3.375% loan like I have on one of my homes? Nope. Keep it forever. So if you get to the point where you need to grow your business or if you decide to invest in real estate, know that debt CAN be good when managed appropriately…it’s a little like playing with fire, as I mentioned earlier. Used appropriately, it’s great…and it’s how I’ve been able to get some pretty good returns in real estate. So don’t be afraid of debt, but manage it carefully and consider what your money is really worth! For business inquiries or one-on-one real estate investing/real estate agent consulting or coaching, you can reach me at [email protected] Suggested reading: The Millionaire Real Estate Agent: http://goo.gl/TPTSVC Your money or your life: https://goo.gl/fmlaJR The Millionaire Real Estate Investor: https://goo.gl/sV9xtl How to Win Friends and Influence People: https://goo.gl/1f3Meq Think and grow rich: https://goo.gl/SSKlyu Awaken the giant within: https://goo.gl/niIAEI The Book on Rental Property Investing: https://goo.gl/qtJqFq Favorite Credit Cards: Chase Sapphire Reserve - https://goo.gl/sT68EC American Express Platinum - https://goo.gl/C9n4e3
Views: 47032 Graham Stephan
How To Use Debt to Get Rich - How The 1% Use Debt To Build Wealth
How To Use Debt to Get Rich - How The 1% Use Debt: You have probably heard of the saying 'there is good debt and then there is bad debt'. First, In this video we are going to compare good debt and bad debt. I will also explain why MOST people should consider all debt, bad debt (like Dave Ramsey). However, this video is mainly about using debt in a good way. How is this possible? Rich people use debt to generate INCOME PRODUCING ASSETS. Whether that is a business, investment, real estate, etc. Whenever rich people borrow money, they use it to create MORE MONEY than they borrowed. For example, an average person may borrow 40k to spend on a car. A rich person will borrow 40k to market a product which will make 60k in revenue, therefore a 20k profit. Borrowing money to 'get ahead' in the investing/business world is a fundamental strategy the ALL fortune 500 companies use. Coincidence? Nope. Debt is a necessity to get to the top income level on the planet. There are also a ton of great advantages for borrowing money. Like the massive tax deductions you get for the interest on the loan, the depreciation you get for the investment you bought, and all other business expenses that are related tot he investment/loan. This on its own can lower significantly reduce your taxable income. For example, there are real estate investors out there that make millions of dollars per year, but dont pay taxes at all because of all the deductions (crazy right?). But remember, before you borrow money, be smart about it and make sure you have enough reserve cashflow to cover all the debt payments, even if the investment fails Queen of Versailles: https://youtu.be/LQW9Ks0GZUQ Dave Ramsey: https://www.youtube.com/user/DaveRamseyShow?&ab_channel=TheDaveRamseyShow Margin Call: https://youtu.be/Y2DqFRsPrns Stock Market Mastery Course: http://bit.ly/2hurfQO Wealth Accelerator Course: http://bit.ly/2qxfONO Podcast: http://chapplerei.com/use-debt-get-rich/ My Favourite 'Mindset' Book: http://amzn.to/2slhmKD A Book for Motivation: http://amzn.to/2slEbOz My Favourite Book on Stocks (In 2017): http://amzn.to/2uktY6k The Most Important Book I've Ever Read: http://amzn.to/2tLQ2tF A Book Influenced my Investing Strategy and Business Strategy: http://amzn.to/2tl44iw My Camera That I Use: http://amzn.to/2slFwEO Arguably My Favourite All-Around Read: http://amzn.to/2ukUwV8 Website! http://chapplerei.com (under construction) On Instagram! https://instagram.com/jack_chapple_real/ On Vine! https://vine.co/u/1176331971736293376 On Twitter! https://twitter.com/JackChappleSci On Faceook! https://www.facebook.com/ChappleREI/
Views: 43351 Jack Chapple
8. Theory of Debt, Its Proper Role, Leverage Cycles
Financial Markets (2011) (ECON 252) Professor Shiller devotes the beginning of the lecture to exploring the theoretical determinants of the level of interest rates. Eugen von Boehm-Bawerk names technical progress, roundaboutness, and time preference as the crucial factors. Professor Shiller complements von Boehm-Bawerk's analysis with two of Irving Fisher's modeling approaches, the view of the interest rate as the equilibrium variable in the savings market and the perspective of simple Robinson Crusoe economies on the determination of interest rates. Subsequently, Professor Shiller focuses his attention on present discounted values and derives the price for discount bonds, consols, annuities, as well as corporate bonds. His treatment of the term structure of interest rates leads him to forward rates and the expectations theory of the term structure of interest rates. At the end of the lecture, he offers insights on usurious loan practices, from ancient times until today, and describes the improvements in consumer financial protection that have been made after the financial crisis of the 2000s. 00:00 - Chapter 1. Introduction 01:24 - Chapter 2. Theories for the Determinants of Interest Rates 28:11 - Chapter 3. Present Discounted Values, Compounding, and Pricing Bond Contracts 47:50 - Chapter 4. Forward Rates and the Term Structure of Interest Rates 01:03:29 - Chapter 5. The Ancient History of Interest Rates and Usurious Loans 01:11:08 - Chapter 6. Elizabeth Warren and the Consumer Financial Protection Bureau Complete course materials are available at the Yale Online website: online.yale.edu This course was recorded in Spring 2011.
Views: 101310 YaleCourses
Leveraging and deleveraging
Leveraging or borrowing has been cited as one of the contributors to the financial crisis. Senior Editor Paddy Hirsch explains how the move to deleverage or reduce debt is prompting wild market swings and concerns about deflation.
Views: 69190 Marketplace APM
Careers in Debt Capital Markets (DCM) @ BNP Paribas CIB
Careers in Debt Capital Markets (DCM) @ BNP Paribas CIB BNP Paribas Corporate & Investment Banking At BNP Paribas CIB, the DCM division includes : * energy & commodity financing * export & trade finance * media & telecom finance * real estate finance * leveraged finance * loan syndication & trading (securitized loans) * shipping finance * optimization & structured leasing * project finance. The bank of choice for issuers Corporate, financial and public-sector issuers worldwide have chosen BNP Paribas as their partner in the international capital markets. Our broad-based strength includes: - Investment Grade & High Yield - Financial Institutions - Sovereigns, Supranationals & Agencies - Hybrid Capital BNP Paribas is quite new in securitization and fixed income but has the potential to become a market leader on its way.
Views: 15439 QUANT GEN
LBO Model - Debt Schedules & Interest Expense (Dell Case Study)
In this tutorial, we walk through Silver Lake's $24 billion leveraged buyout of Dell and explain the tasks you might have to complete if you were to analyze this deal as part of a case study in a private equity interview. By http://www.mergersandinquisitions.com/ "Discover How To Break Into Investment Banking or Private Equity, The Easy Way" In Part 3 of the case study, we walk you through how to create the debt schedules for the company, handle repayments of existing assumed debt, and calculate mandatory and optional repayments each year. Then, we show you how to link the debt schedules to the Balance Sheet and Cash Flow Statement and how to build in the option for circular references and average debt balances when calculating and linking net interest expense at the end. Please see the link below to get all the Excel files and PDFs and other resources. http://www.mergersandinquisitions.com/leveraged-buyout-lbo-model-debt-schedules-interest-expense/
Existing Debt in Leveraged Buyouts: Why It Doesn't Matter
In this tutorial, you’ll learn why a company’s existing Debt and capital structure don’t make (much of) a difference in leveraged buyouts and LBO models, despite guides that claim the contrary. You’ll also learn about a few exceptions where these items do make a small difference. Table of Contents: 6:33 Exception #1: Call Premiums 10:00 Exception #2: Lender Familiarity 11:50 Recap and Summary Lesson Outline: For the most part, a company’s existing capital structure does NOT matter in leveraged buyout scenarios. That’s because in an LBO, the PE firm completely replaces the company’s existing Debt and Equity with new Debt and Equity. Let’s say that a PE firm wants to acquire a company for 10x EV / EBITDA using 5x Debt / EBITDA. Regardless of whether a company has 0 Debt or 4x Debt / EBITDA before the LBO, it will still have 5x Debt / EBITDA after the LBO. The PE firm will also have to contribute the same amount of equity to the deal (5x EBITDA). Existing Debt would affect things only if it somehow increased the Purchase Enterprise Value. But that line of thinking is incorrect: If a company raises additional Debt, both its Cash and Debt balances increase, canceling each other out, and resulting in the same Enterprise Value. So, unless you have incorrect beliefs about the concept of Enterprise Value or the pricing for leveraged buyouts, existing capital structure doesn’t matter. However, there are a few small exceptions where it makes A BIT of a difference. Exception #1: Call Premiums Some Debt limits early repayments; for example, on a 10-year unsecured bond issuance, the company might not be able to repay Debt at all for the first two years. Then, after that, the company might have to repay 105% of the outstanding principal if it does so in Years 3-4, 103% in Years 5-6, 101% in Years 7-8, and 100% in Years 9-10. These “call premiums” make it more expensive to repay the Debt, which is almost always required in LBO scenarios, and increase the effective Purchase Enterprise Value. But they still don’t matter that much: In a 10x EV / EBITDA deal with 5x Debt / EBITDA, for example, a 110% call premium would increase the purchase multiple to 10.5x and reduce the IRR by about 2%. And the call premium is usually much less than 110%. Exception #2: Lender Familiarity If the company has a track record of servicing its Debt, paying interest, and using loans responsibly, lenders may be more inclined to invest in another Debt issuance from the company. Or, if the company has a poor track record with all of those, lenders may be less likely to invest in a new Debt issuance. These points don’t affect the purchase price or IRR, but they may make it easier or more difficult to get a deal done. You could argue that a solid track record might result in a lower coupon rate on the Debt, but that’s quite a stretch, and it would be difficult to find real data to support that theory. Even if that happened, a slightly lower interest rate would make almost no difference on the IRR or money-on-money multiple. RESOURCES: https://youtube-breakingintowallstreet-com.s3.amazonaws.com/109-14-LBO-Model-Existing-Debt-Slides.pdf https://youtube-breakingintowallstreet-com.s3.amazonaws.com/109-14-LBO-Model-Existing-Debt.xlsx
04 - What is leverage? - easyMarkets - Education
For more info visit: Easy Forex - http://www.easy-forex.com/gtw/6255274.aspx When most people think about investing they think that they need large amounts of initial capital in order to start. While this may be the case for stocks, bonds and other investments, forex is much more accessible due to the use of leverage. So how does leverage affect your trading? To explain, think of buying a home. You may want to buy a property that is worth one hundred thousand dollars, so you go to a bank to take out a loan or mortgage. The bank requests that you supply twenty percent of the property as a down payment on your loan. So, for twenty thousand dollars, you are now able to enter into ownership of a one hundred thousand dollar home. This is an illustration of leverage in real estate. You have bought the home at a leverage of five to one, since twenty thousand dollars is one fifth of one hundred thousand dollars. One year later the property market has appreciated by fifty percent and you decide to sell the property for one hundred and fifty thousand dollars, making a fifty thousand dollar profit. If you had not taken out a bank loan and had used only your twenty thousand dollars to buy a small studio which cost that amount, your total profit after a fifty percent property price increase would have been only ten thousand dollars. Your five to one leverage has allowed you to earn five times more than you would have if you had traded without leverage. Let's see how we can apply leverage to a forex deal. You currently have one thousand Euros to invest and you decide to buy one hundred thousand EUR worth of EUR/USD, at a rate of one point thirty-one thirty. Since one thousand is one hundredth of one hundred thousand, you are using a leverage of one hundred to one. The EUR/USD rate then moves up to one point thirty-one forty and you decide to close your deal, making a ten pip profit. Using the pip formula from the 'What is a pip video,' you can calculate that your total profit is one hundred dollars. If you had not traded with leverage you would have only made a one dollar profit. In fact, depending on your account type and risk preference, you can trade much smaller or larger deal sizes, and use different levels of leverage. It is important that you keep in mind that higher leverage can increase your potential profits, but it can also lead to bigger potential losses. Due to this risk, we encourage traders to plan their trades well by making sure they employ a risk management strategy and keep learning about the market. To improve your trading skills further, you can visit the Learn section of our website where you can explore the rest of our educational tools such as our eBook, and sign up for our online webinars
Views: 148260 easyMarkets
How to work a Leveraged Buy Out or LBO - How to Buy a Business - David C Barnett
Learn to buy a business here: http://www.BusinessBuyerAdvantage.com Related Article: I got a great piece of feedback the other day on YouTube. Wayne tells me that ‘any idiot’ can put a deal together to buy a business without using their own money otherwise ‘leveraged buy outs’ would not exist. This week I’ll explain to you what a leveraged buy out is, how it works, and we’ll see if a person with no money could actually pull it off. I know that you’re all anxious to find out if you’d be an idiot under Wayne’s definition. It’s all in this video right here: https://youtu.be/UrBLOtRY0OI Learn how to buy a business successfully with my Business Buyer Advantage Program. You can access the course at www.BusinessBuyerAdvantage.com and learn more about how it works from this video I made a few weeks ago: https://youtu.be/ooixMSaFf6Y Please remember to like and share this article, it’s the only way the people who run the internet have of knowing if the content is any good or not. The more you share, the more likely someone who needs this information will be able to find it. Go to www.DavidCBarnett.com and sign up for my weekly e-mail. Easy unsubscribe at any time as I use MailChimp and I’m not interested in harassing people who don’t want to hear from me. If you’re into podcasts, you can now easily subscribe to the audio of all my new videos on iTunes. This summer & fall I’ll be in St. John’s, Newfoundland, NYC, Orlando & Toronto. Find out more and sign up at http://davidbarnett.eventbrite.com Thank you and I’ll see you next time.
Views: 10607 David Barnett
Investment Banking Areas Explained: Capital Markets
Capital markets are one of the most fascinating areas of investment banking. Companies need these services when they are about to go public or want to issue debt sold to the public. When a company wants to raise equity, we talk about ECM, standing for Equity Capital Markets, and when it wants to raise debt, we talk about DCM, standing for Debt Capital Markets. On Facebook: https://www.facebook.com/365careers/ On the web: http://www.365careers.com/ On Twitter: https://twitter.com/365careers Subscribe to our channel: https://www.youtube.com/365careers
Views: 86075 365 Careers
Careers in DCM (Debt Capital Markets - Leveraged Finance) at UBS
Careers in DCM - Leveraged Finance at UBS David Soanes (Cambridge, DCM at UBS) http://www.ubs.com/global/en/investment-bank/meet-our-management/david-soanes.html Are you a born multi-tasker? Are you happiest when you're tackling complex information? A role in Global Capital Markets could be your dream job. What we do Global Capital Markets bridges the gap between an investment banking role and a sales or trading role by combining the analytical, quantitative aspect of banking with the fast-paced and demanding environment of the trading floor. The group is made up of Debt Capital Markets and Equity Capital Markets, and it's part of the Securities Group within UBS. The Global Capital Markets Group works with some of the world's major corporations, financial institutions and public sector entities. Analysts in this group identify clients' individual funding needs and determine appropriate markets, instruments and offering structures to maximize their objectives. What we're looking for Analysts in the Global Capital Markets Group manage several assignments simultaneously. You'll need to be able to juggle multifaceted tasks and projects every single day. An instinct for numbers will enable you to fulfil a wide variety of responsibilities, including assessing market capacity, transaction sizes and potential investor demand. Successful Analysts possess exceptional organisational skills, useful in collecting and analyzing market data and in maintaining our valuable databases. Meanwhile, natural flair as a communicator will make all the difference in producing winning presentations for client meetings. What we can offer you When you join our Graduate program, your education starts on the very first day. An intensive training programme equips you with the skills and financial knowledge necessary to excel in your new job. You'll also be encouraged to network with colleagues across the firm, giving you contacts that can help you build your career. Analysts joining the Global Capital Markets Group at UBS are provided with broad experience in capital markets and investment banking. Following your classroom training, you'll join either the Debt Capital Markets or Equity Capital Markets Groups. From there, you'll actively participate in originating, structuring and executing debt and equity products. Analysts become involved in every aspect of transaction analysis and execution from start to finish, so you'll get the chance to hone your skills in everything from pitching and marketing to closing and pricing. As a Global Capital Markets Analyst, you'll also receive maximum opportunity to interact with the complete range of UBS's services, resources, sector groups and clients. Business lines : Leveraged Finance Capital Markets. The Leveraged Finance Capital Markets team originates, structures and executes bank loans and high yield bond financings for corporate clients and financial sponsors. Some transactions include leveraged buyouts, refinancings and restructurings. The team's syndicate desk is responsible for underwriting and syndicating bank loans and high yield bonds. Liability Management. The Liability Management team advises on and executes public and private debt transactions including tenders, exchange offers, and consents. These transactions are often executed as part of broader corporate restructurings, asset sales and refinancings. Structured Finance. The Structured Finance team helps clients securitize assets, businesses and risks associated with acquisition financing and balance sheet management. The team's product suite includes catastrophe bonds, film, entertainment and aircraft financing, and the securitization of franchise royalties, intellectual property, infrastructure, auto loans, student loans, and life insurance.
Views: 11516 QUANT GEN
DEBT TO CASH FLOW? (Let's Talk About Leverage in Finance!)
Matthew Pillmore, president of VIP Financial Education, is again joined by real estate expert Kevin Amolsch of Pine Financial, self leadership expert KellyAnne Zielinski of Self Leadership Global, and personal finance expert Joe McKowen, to discuss how they each have utilized leverage in their financial plan. They dive into how leverage is used as an entrepreneur, in small business growth, in real estate and investing in opportunities. In this episode, we take a popular question from our recent live Q&A, just in case you didn't catch it (considering it is over 2 hours long!). Comment below with any leverage, debt, banking and borrowing, finances, investing, and/or lending question you'd like us to answer in our next live Q&A or possibly in our next video! Don't forget to sign up TODAY for your exclusive one on one consultation at: http://www.FreeCoachingCalendar.com Check out Kevin's channel PineFinancial: https://www.youtube.com/user/pinefinancial/videos Check out KellyAnne's channel Self Leadership Global: https://www.youtube.com/user/TheWealthyWord Have you checked out our ongoing contest?? CONTEST RULES: In order to be eligible for the ongoing contests you must: A) Be Subscribed B) Comment on this video (We’d love to hear what you’ve learned from our channel and how it is impacting you!) Each time you comment on a new video your name will be entered into the contest drawing, so the more you comment on the videos, the better your chances of winning! You can also gain additional entries by sharing our video on your social media accounts or by commenting on our Instagram or Facebook accounts. CONTEST PRIZES: 1: $25 Amazon Gift Cards a) 1 winner selected each week for next 24 weeks. 2: 2 Hour Skype Coaching Session a) 1 winner selected each month for next 5 months. b) To be considered: - Must have a MINIMUM of $500 average cash flow each month. No exceptions. 3: GRAND PRIZE - 2 Night Trip For Two to Denver and an Afternoon With Mr. Pillmore a) 1 winner selected first week of October. b) To be considered: - Must have a MINIMUM of $500 average cash flow each month. No exceptions. - Win a 2 hour Skype session with Mr. Pillmore. Current coaching members are also eligible for the contest! Our coaching costs can change with demand. To see our current pricing please watch this video: https://www.youtube.com/watch?v=HbVLmCvFjoI Want more actionable financial tips and tricks like this one? Check out our YouTube channel here https://www.youtube.com/channel/UC45hHuqWfdi7TIZg0RDG9_g Make sure to check out our social channels for more insight and industry news! Facebook - https://www.facebook.com/VIPFinancialEducation/ Instagram - https://www.instagram.com/vipfinancialed/ Instagram (Lifestyle) - https://www.instagram.com/vipfinancialedlifestyle/ Twitter - https://twitter.com/VIPFinancialEd LinkedIn - https://www.linkedin.com/in/vipfinancialed/ BBB A+ Rating - https://www.bbb.org/denver/business-reviews/financial-services/vip-enterprises-llc-in-westminster-co-90024254/ Complimentary services and products mentioned in our videos are available for a limited time only and are not guaranteed at the viewing of this video. VIP Financial Education provides resources for educational purposes only. Our education is not a substitute for legal, tax, or financial advice and results vary. VIP Financial Education encourages viewers to do their homework before taking any financial action. VIP Enterprises, LLC may from time to time earn commissions by recommending various products, services, and programs.
Views: 3119 VIPFinancialEd
Leveraged Buyout - Debt Equity Ratio (REVISED)
In this tutorial, you’ll learn how to determine the proper debt level to use in a leveraged buyout case study given by a private equity firm – all from using Google and free information you can find online. Table of Contents: 2:35 Step 1: Find Comparable Deals and Estimate the Purchase Multiple and Debt / EBITDA 9:45 Step 2: Test Your Assumptions in Excel 16:21 Step 3: Tweak Your Assumptions as Necessary 18:21 Recap and Summary Lesson Outline: Question that came in the other day… “Help! I just got a case study from a private equity firm I’m interviewing with.” “I have to pick a consumer/retail company, download its filings, complete a leveraged buyout model for the company, and recommend for or against the deal.” “How can I determine how much debt to use in the deal? They didn’t give me any instructions!” You can figure this out simply in most cases without wasting a ton of time sifting through company’s filings. Here’s the 3-step process: Step 1: Estimate the purchase multiple, purchase price, and Debt / EBITDA by looking at comparable buyout deals (NOT publicly traded companies, as they almost always have lower debt levels). Step 2: Test your assumptions in Excel and see if the company can manage that much debt. Step 3: Go back and tweak your assumptions as necessary. The purchase price and Debt / EBITDA are very closely linked – for example, you can’t assume 6x Debt / EBITDA if you’re paying only 5x EV / EBITDA for the entire company. For most public companies, you need to assume at least a 20-30% share price premium, and then make sure the implied EV / EBITDA multiple is in-line with those of other recent deals in the market. Let’s say you pick Bed, Bath & Beyond [BBBY] for your LBO candidate. To find 2-3 comparable LBO deals, you can do Google searches for terms like: “consumer retail” “leveraged buyouts” [This Year or Last Year] consumer leveraged buyouts retail leveraged buyouts In this case, we find 3 relevant deals: the buyouts of Petco (10x EV / EBITDA and 6x Debt / EBITDA), Life Time Fitness (11x EV / EBITDA and 5.5x Debt / EBITDA), and Belk (7x EV / EBITDA and 5-6x Debt / EBITDA). So our deal will likely be done at 8-10x EV / EBITDA with 5-6x Debt / EBITDA. BBBY’s share price has fallen by ~50% in the past year, so we think a 50%, 75%, or even 100% premium would be more reasonable than the standard 20-30%, and would imply a purchase multiple of 6.5x – 8.5x instead. But can the company support that much debt? To answer this question, you can create a simple Excel model with revenue growth, EBITDA margins, Cash Flow from Operations as a % of EBITDA, and CapEx as the key drivers. The after-tax interest will also be subtracted from CFO – CapEx to determine debt repayment capacity. Then you can evaluate debt repayment, Debt / EBITDA, and EBITDA / Interest over time to see if the debt level is too low, too high, or just about right. Focus on the downside cases – What happens if revenue, EBITDA, cash flow, etc. decline? Margins and growth HAVE declined historically for BBBY! Ideally, Debt / EBITDA should decline over time and EBITDA / Interest should rise as the company repays debt. So if Debt / EBITDA rises instead, or EBITDA / Interest falls, you’ll have to assume a lower debt level. In this deal, we run into trouble when revenue declines or when we pay closer to a 100% premium for the company because Debt / EBITDA approaches 8x in some later years. Even if revenue growth stays positive and the premium is only 75%, the credit stats and ratios still don’t look "great." So we’d say that 5-6x Debt / EBITDA is a stretch, and 4-5x is more feasible. At a 75% premium, this might be 60% debt (4.5x) and at a 100% premium it might be 50% debt (4.2x). Once you’ve come up with baseline estimates for these figures, you would continue to build the model, come up with something more complex, and then ultimately make your investment recommendation on the company and present it. But you can save a lot of time and finish case studies more efficiently if you know how to find and confirm simple figures like these before you do anything more complex. RESOURCES: https://youtube-breakingintowallstreet-com.s3.amazonaws.com/109-11-Leveraged-Buyout-Debt-Equity-Ratio.pdf https://youtube-breakingintowallstreet-com.s3.amazonaws.com/109-11-Leveraged-Buyout-Debt-Equity-Ratio.xlsx
Robert Kiyosaki: On Debt / Using low rate financing to invest in Texas real estate
Robert Kiyosaki sits down with Kurt Carlton, CEO of Sherman Bridge Lending and Andrew Welker, CEO of New Western. This video is on the importance of having a financial education. Robert describes how favorable the current mortgage rates are for investing in real estate in Texas. He also describes how to save money on your taxes through real estate. Kiyosaki states he mainly invests in distressed houses and apartment buildings in Dallas, Fort Worth and Houston investment real estate. He is also a big proponent of using leverage such as hard money to get your investment deal done. New Western is a Texas based company that provides investment properties for real estate investors www.NewWestern.com and Sherman Bridge Lending provides rehab lending for real estate investors www.ShermanBridge.com.
Views: 48288 newwesterndotcom
Debt Financing (Leveraged Buyout)
an informational video-- Created using PowToon -- Free sign up at http://www.powtoon.com/youtube/ -- Create animated videos and animated presentations for free. PowToon is a free tool that allows you to develop cool animated clips and animated presentations for your website, office meeting, sales pitch, nonprofit fundraiser, product launch, video resume, or anything else you could use an animated explainer video. PowToon's animation templates help you create animated presentations and animated explainer videos from scratch. Anyone can produce awesome animations quickly with PowToon, without the cost or hassle other professional animation services require.
Views: 4701 Shayb Sultan
What is S&P LEVERAGED LOAN INDEX? What does S&p LEVERAGED LOAN INDEX mean? S&P LEVERAGED LOAN INDEX meaning - S&P LEVERAGED LOAN INDEX definition - S&P LEVERAGED LOAN INDEX explanation. Source: Wikipedia.org article, adapted under https://creativecommons.org/licenses/by-sa/3.0/ license. S&P Leveraged Loan Indexes (S&P LL indexes) are capitalization-weighted syndicated loan indexes based upon market weightings, spreads and interest payments. The S&P/LSTA Leveraged Loan Index (LLI) covers the U.S. market back to 1997 and currently calculates on a daily basis. The S&P/LSTA Leveraged Loan 100 Index (LL100) dates back to 2002 and is a daily tradable index for the U.S. market that seeks to mirror the market-weighted performance of the largest institutional leveraged loans, as determined by criteria. Its ticker on Bloomberg is SPBDLLB. These indexes are run in partnership between S&P and the Loan Syndications & Trading Association, the loan market’s trade group. The S&P European Leveraged Loan Index (ELLI) covers the European market back to 2003 and currently calculates on a weekly basis. S&P introduced the LLI in 2001, including historical data back to January 1997. The ELLI was introduced in 2005 with history back to 2003. The LL100 was introduced in 2008 with history back to Dec. 31, 2001. On its base date (Dec. 1, 1996), the LLI tracked 36 facilities representing $5.2 billion of loans. As of Dec. 31, 2009, it included 189 facilities representing $529.9 billion of loans. Over those 13 years, the LLI has had an average annualized total return of 6.7%. On its base date (Jan. 1, 2002), the S&P European Loan Index tracked 12 facilities representing €2.6 billion of loans. As of Dec. 31, 2009, it encompassed 552 facilities representing €135.1 billion of loans. Over those seven years, the ELLI has had an average annualized total return of 3.6%. The S&P/LSTA Loan 100 consists of 100 facilities drawn from the LLI. It seeks to mirror the market-weighted performance of the largest institutional leveraged loans in an effort to reflect the most liquid side of the market. On its base date, the LL100 represented $51.3 billion in loans. As of Dec. 31, 2009, its universe had grown to $221.8 billion, reflecting the rapid growth in the size of loans over those eight years. Over its seven years of performance tracking, the LL100 has had an average annualized total return of 5.4%. The long history of these indexes helps to highlight the impact of the current credit crunch. Until 2008, the S&P LL indexes had very low volatility rates and their pricing remained close to par. Between 1996 and 2007, the lowest price hit by the LLI was 86.90 on Nov. 1, 2002, in the midst of the telecom default cycle. Over the past two years, the price on the LLI has dropped as low as 60.33 – well into what has traditionally been known as distressed pricing.
Views: 172 The Audiopedia
Paying Cash vs Using Leverage to Purchase Investments
Paying Cash vs Using Leverage to Purchase Investments There are two distinct methods used for purchasing rental real estate: paying with cash or using leverage. In this video, I’ll weigh the two options, and supply information to help you understand which method is best for you. In this video, you’ll learn the pros and cons of traditional financing, private money lending, and using cash. I’ll talk about the limitations of a traditional mortgage, how to find private financing, and why purchasing with cash can be so powerful. You’ll also learn about a fantastic method for turning one rental property into a robust portfolio. I’ll share a few resources that will help you get your head in the game and start earning a passive income through real estate. Press play to learn more about your financing options for real estate investing! CapWest: https://goo.gl/UK881I Lima One Financial: https://goo.gl/xjTsPo Meetup.com: https://goo.gl/BDHv2H BOOK A FREE CALL WITH OUR TEAM TODAY AT MORRIS INVEST: https://goo.gl/DNIIh0 CHECK OUT OUR OTHER GREAT VIDEO PLAYLISTS LIKE: VIDEOS ABOUT TURNKEY REAL ESTATE INVESTING: https://goo.gl/1bGEhB OR VIDEOS ABOUT GETTING STARTED IN REAL ESTATE https://goo.gl/dPfWeY OR VIDEOS ABOUT REAL ESTATE NEWS https://goo.gl/m1b3U8 SUBSCRIBE AND JOIN OUR AWESOME COMMUNITY: https://goo.gl/Polf6I LISTEN TO THE PODCAST: iTunes: https://goo.gl/vM969n FOLLOW ME ON SOCIAL MEDIA: Twitter: http://www.twitter.com/claytonmorris Facebook: https://www.facebook.com/MorrisInvest Instagram: https://www.instagram.com/claytonmorris
Views: 55675 Morris Invest
Debt vs. Equity Analysis: How to Advise Companies on Financing
In this tutorial, you’ll learn how to analyze Debt vs. Equity financing options for a company, evaluate the credit stats and ratios in different operational cases, and make a recommendation based on both qualitative and quantitative factors. http://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" Table of Contents: 0:50 The Short, Simple Answer 3:54 The Longer Answer – Central Japan Railway Example 12:31 Recap and Summary If you have an upcoming case study where you have to analyze a company’s financial statements and recommend Debt or Equity, how should you do it? SHORT ANSWER: All else being equal, companies want the cheapest possible financing. Since Debt is almost always cheaper than Equity, Debt is almost always the answer. Debt is cheaper than Equity because interest paid on Debt is tax-deductible, and lenders’ expected returns are lower than those of equity investors (shareholders). The risk and potential returns of Debt are both lower. But there are also constraints and limitations on Debt – the company might not be able to exceed a certain Debt / EBITDA, or it might have to keep its EBITDA / Interest above a certain level. So, you have to test these constraints first and see how much Debt a company can raise, or if it has to use Equity or a mix of Debt and Equity. The Step-by-Step Process Step 1: Create different operational scenarios for the company – these can be simple, such as lower revenue growth and margins in the Downside case. Step 2: “Stress test” the company and see if it can meet the required credit stats, ratios, and other requirements in the Downside cases. Step 3: If not, try alternative Debt structures (e.g., no principal repayments but higher interest rates) and see if they work. Step 4: If not, consider using Equity for some or all of the company’s financing needs. Real-Life Example – Central Japan Railway The company needs to raise ¥1.6 trillion ($16 billion USD) of capital to finance a new railroad line. Option #1: Additional Equity funding (would represent 43% of its current Market Cap). Option #2: Term Loans with 10-year maturities, 5% amortization, ~4% interest, 50% cash flow sweep, and maintenance covenants. Option #3: Subordinated Notes with 10-year maturities, no amortization, ~8% interest rates, no early repayments, and only a Debt Service Coverage Ratio (DSCR) covenant. We start by evaluating the Term Loans since they’re the cheapest form of financing. Even in the Base Case, it would be almost impossible for the company to comply with the minimum DSCR covenant, and it looks far worse in the Downside cases Next, we try the Subordinated Notes instead – the lack of principal repayment will make it easier for the company to comply with the DSCR. The DSCR numbers are better, but there are still issues in the Downside and Extreme Downside cases. So, we decide to try some amount of Equity as well. We start with 25% or 50% Equity, which we can simulate by setting the EBITDA multiple for Debt to 1.5x or 1.0x instead. The DSCR compliance is much better in these scenarios, but we still run into problems in Year 4. Overall, though, 50% Subordinated Notes / 50% Equity is better if we strongly believe in the Extreme Downside case; 75% / 25% is better if the normal Downside case is more plausible. Qualitative factors also support our conclusions. For example, the company has extremely high EBITDA margins, low revenue growth, and stable cash flows due to its near-monopoly in the center of Japan, so it’s an ideal candidate for Debt. Also, there’s limited downside risk in the next 5-10 years; population decline in Japan is more of a concern over the next several decades. RESOURCES: https://youtube-breakingintowallstreet-com.s3.amazonaws.com/Debt-vs-Equity-Analysis-Slides.pdf
David Stockman: The Fed Has Left Us With The Highest Leveraged Debt Ratio In History
Air Date: March 19th, 2015 This video may contain copyrighted material. Such material is made available for educational purposes only. This constitutes a 'fair use' of any such copyrighted material as provided for in Title 17 U.S.C. section 107 of the US Copyright Law.
Views: 1373 selfownership1
Funding the Acquisition: The Nuts and Bolts of Debt Financing
featuring Steve Groya, Aldine Capital Partners
Views: 3474 Polsky Center
How to Use Debt to Create Passive Income
In this video I show how to use debt to build a business and create passive income. Want to learn more about growing massive businesses and investing the profits? Join The One Percent: https://www.capitalism.com/OnePercentProgram ► Subscribe to My Channel Here https://www.youtube.com/user/RyanMoran13?sub_confirmation=1 ★☆★ CONNECT ON SOCIAL MEDIA ★☆★ The One Percent Podcast: https://www.capitalism.com/TheOnePercentPodcast Twitter: https://twitter.com/RyanMoran Instagram: https://www.instagram.com/ryandanielmoran/ Linkedin: https://www.linkedin.com/in/theryanmoran/
Views: 205066 Ryan Daniel Moran
Financial Statement Analysis #3: Long Term Solvency Measures or Leverage Ratios
http://www.subjectmoney.com http://www.subjectmoney.com/articledisplay.php?title=Financial%20Statement%20Analysis%20and%20Ratios In this financial statement analysis tutorial we cover long-term solvency measure also known as leverage ratios. In this tutorial we cover the total debt ratio, the debt to equity ratio, the equity multiplier the TIE ratio and the cash coverage ratio. Please don't forget to subscribe, rate, & share our videos. Please also visit our websites http://www.subjectmoney.com & http://www.excelfornoobs.com https://www.youtube.com/user/Subjectmoney https://www.youtube.com/watch?v=qg1N9_CQtyk
Views: 38105 Subjectmoney
Simple LBO Model - Case Study and Tutorial
In this LBO Model tutorial, you'll learn how to build a very simple LBO model "on paper" that you can use to answer quick questions in PE (and other) interviews. By http://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" This matters because in many cases, they'll ask you to calculate numbers such as IRR and multiple of invested capital very quickly and will not actually ask you to build a more complex model until later in the process. You should always START this exercise by looking at the actual question or set of questions they are asking you: "Calculate the purchase price required for ABC Capital to obtain a 3.0x multiple of invested capital (MOIC) if it plans to sell OpCo after five years at an EV / EBITDA multiple of 6.0x." So they're giving you the exit multiple and the return on investment that the PE firm is targeting, and you have to figure out the initial purchase price by "working backwards." Here's how we interpret each line in this case study and use it in the model: "OpCo currently has EBITDA of $250mm, and ABC believes that the new management team could keep EBITDA flat for the next 5 years." This tells you to make the initial EBITDA $250mm and keep it at that level for 5 years - skip revenue, COGS, OpEx, and everything else because none of that matters if this is all they give you. "ABC Capital has obtained debt financing of $750mm at 10% interest, and OpCo expects working capital to be a source of funds at $6mm per year." The initial debt balance is $750mm and there's a 10% interest rate, so the interest expense will be $75mm per year. In the "Cash Flow Statement Adjustments", since Working Capital is a SOURCE of funds it will add $6mm to cash flow each year. "OpCo requires capital expenditures of $35mm per year, and it has a tax rate of 40%. Assume no transaction fees, zero minimum cash required, and that PP&E on the balance sheet remains constant for the next 5 years." Also in the CFS section, CapEx = $35mm per year, and Depreciation also equals $35mm per year since the PP&E balance does not change at all. So you can also fill in the Depreciation figure on the Income Statement. No transaction fees and no minimum cash requirement simplify the purchase price and debt repayment - although we don't even have debt repayment here. "Assume that excess cash is NOT used to repay debt, and instead simply accumulates on the Balance Sheet." This makes the final numbers easier to calculate, since interest expense will never change and you can simply add up cash generated to get to the final cash number at the end. PROCESS: 1. Start with the Income Statement - EBITDA is $250mm per year. Subtract Depreciation of $35mm per year, and interest of $75mm per year. So EBIT = $140mm. Taxes = $140mm * 40%, so Net Income = $140mm - $56mm = $84mm. 2. On the simplified CFS, Net Income = $84mm, Depreciation = $35mm, Change in Working Capital = $6mm, CapEx = ($35mm), so Cash Generated per year = $90mm. 3. EBITDA Exit Multiple = 6.0x, and final year EBITDA = $250mm, so Exit EV = $1.5B. Subtract the outstanding debt of $750mm and add the cash generated in this period of $450mm, so Equity Proceeds = $1.2B. 4. Targeted MOIC = 3.0x so the PE firm would have to invest $400mm in the beginning. $400mm equity + $750mm debt = $1.150B, so the purchase multiple is $1,150 / $250 = 4.6x. Further Resources http://youtube-breakingintowallstreet-com.s3.amazonaws.com/109-04-Simple-LBO-Model.pdf http://youtube-breakingintowallstreet-com.s3.amazonaws.com/109-04-Simple-LBO-Model.xlsx
Why Renewed Danger Lurks in the U.S. Leveraged Loan Market
In investing, one rule of thumb tells you that the higher the return, the higher the risk. Today, one high-yield debt instrument that was at the forefront of the 2007-2009 financial crisis has reached a new, dangerous milestone. We're sounding the alarm -- again.
PROS & CONS OF LEVERAGE (is it a good option for you to build wealth & financial freedom?)
Matthew Pillmore discusses both the good and the bad that comes with utilizing leverage to accelerate and enhance your financial goals and aspirations. Is leverage the right option for you and your financial goals? Robert Kiyosaki, the author of Rich Dad Poor Dad, is a big supporter of utilizing leverage to build wealth, while Dave Ramsey is on the other side of the argument, claiming that the best way forward is by using no debt at all. Matt looks at some key pros and cons to each perspective so that you can decide whether leverage is a tool that would serve your financial goals or not. Don't forget to sign up TODAY for your exclusive one on one consultation at: http://www.FreeCoachingCalendar.com Our coaching costs can change with demand. To see our current pricing please watch this video: https://www.youtube.com/watch?v=HbVLmCvFjoI Keep in mind - we have an ongoing contest for the next 5 months! We'll be giving away a $25 Amazon Gift Card every week, Video Coaching Sessions and a Grand Prize trip to Denver! Check out the rules and prizes in more detail below: CONTEST RULES: In order to be eligible for the ongoing contests you must: A) Be Subscribed B) Comment on this video (We’d love to hear what you’ve learned from our channel and how it is impacting you!) Each time you comment on a new video your name will be entered into the contest drawing, so the more you comment on the videos, the better your chances of winning! You can also gain additional entries by sharing our video on your social media accounts or by commenting on our Instagram or Facebook accounts. CONTEST PRIZES: 1: $25 Amazon Gift Cards a) 1 winner selected each week for next 24 weeks. 2: 2 Hour Skype Coaching Session a) 1 winner selected each month for next 5 months. b) To be considered: - Must have a MINIMUM of $500 average cash flow each month. No exceptions. 3: GRAND PRIZE - 2 Night Trip For Two to Denver and an Afternoon With Mr. Pillmore a) 1 winner selected first week of October. b) To be considered: - Must have a MINIMUM of $500 average cash flow each month. No exceptions. - Win a 2 hour Skype session with Mr. Pillmore. Current coaching members are also eligible for the contest! Want more actionable financial tips and tricks like this one? Check out our YouTube channel here https://www.youtube.com/channel/UC45hHuqWfdi7TIZg0RDG9_g Make sure to check out our social channels for more insight and industry news! Facebook - https://www.facebook.com/VIPFinancialEducation/ Instagram - https://www.instagram.com/vipfinancialed/ Instagram (Lifestyle) - https://www.instagram.com/vipfinancialedlifestyle/ Twitter - https://twitter.com/VIPFinancialEd LinkedIn - https://www.linkedin.com/in/vipfinancialed/ BBB A+ Rating - https://www.bbb.org/denver/business-reviews/financial-services/vip-enterprises-llc-in-westminster-co-90024254/ Complimentary services and products mentioned in our videos are available for a limited time only and are not guaranteed at the viewing of this video. VIP Financial Education provides resources for educational purposes only. Our education is not a substitute for legal, tax, or financial advice and results vary. VIP Financial Education encourages viewers to do their homework before taking any financial action. VIP Enterprises, LLC may from time to time earn commissions by recommending various products, services, and programs.
Views: 3218 VIPFinancialEd
Capital structure
In stories about the auto companies and the banks, we've been hearing a lot about debt-to-equity swaps, and exchanging preferred shares for common stock. To get how those swaps work, you first need to understand a company's capital structure. Senior Editor Paddy Hirsch explains.
Views: 123570 Marketplace APM
FRM: Bank Balance Sheet & Leverage Ratio
Stylized balance sheet of depository institution to illustrate (1) high leverage, (2) dependency on spread (ROA - COF) and (3) key ratios: leverage, and Basel's Tier 1 leverage ratio. For more financial risk videos, visit our website! http://www.bionicturtle.com
Views: 71536 Bionic Turtle
Financial Advisor Told Me To Invest Instead Of Paying Debt
Learn to budget, beat debt, & build a legacy. Visit the online store today: https://goo.gl/GjPwhe Subscribe to stay up to date with the latest videos: http://www.youtube.com/user/DaveRamseyShow?sub_confirmation=1 Welcome to The Dave Ramsey Show like you've never seen it before. The show live streams on YouTube M-F 2-5pm ET! Watch Dave live in studio every day and see behind-the-scenes action from Dave's producers. Watch video profiles of debt-free callers and see them call in live from Ramsey Solutions. During breaks, you'll see exclusive content from people like Rachel Cruze, and Chris Hogan, Christy Wright and Chris Brown —as well as all kinds of other video pieces that we'll unveil every day. The Dave Ramsey Show channel will change the way you experience one of the most popular radio shows in the country!
Views: 257341 The Dave Ramsey Show
Capital Structure & Financial Leverage 1of3 - Pat Obi
The capital structure question
Views: 57079 Pat Obi
White & Case LLP: European leveraged debt fights back
White & Case partners Lee Cullinane and Rob Mathews discuss how European high yield and leveraged loan markets have changed over the past 12 months and what lies ahead for 2017. See full report here: http://www.whitecase.com/publications/insight/european-leveraged-debt-fights-back
Views: 306 whitecaseglobal
Levered and Unlevered Beta, James Tompkins
This is an advanced topic and will likely make more sense if you already understand the six "Corporate Finance" series lectures. In this "mini-topic" I explain what I mean by the levered and unlevered beta and then derive a relation between the two. I also develop the formula for the debt tax shield, which is relevant to the levered and unlevered beta derivation.
Views: 23486 Understanding Finance
Operating Leverage: Calculation and Meaning
You will learn what the concept of “operating leverage” means in this lesson, including several different methods to calculate it and interpret it for real companies. You’ll also learn why it sometimes doesn’t tell you as much as you think it does. http://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" Table of Contents: 0:57 What Does Operating Leverage Mean? 5:16 Formulas to Calculate Operating Leverage 15:25 How to Interpret Operating Leverage in Real Life 20:21 Recap and Summary What Does Operating Leverage Mean? Operating leverage relates to a company’s fixed vs. variable costs – a company with a higher percentage of fixed costs is said to have “high operating leverage,” because as its sales grow, more of those sales trickle down into operating income. For example, software companies tend to have high operating leverage because most of their spending happens upfront in the product development process. Selling each additional copy of a software product costs very little since the distribution is almost free and there are no “raw materials.” On the other hand, consulting or services companies have low operating leverage because most of their spending is variable: as sales increase, their spending increases in lockstep, and as sales decrease, their spending also decreases. So the end result is that operating leverage introduces higher potential rewards, but also greater risk. If a company’s sales increase, it helps to have higher operating leverage. But if they decrease, higher operating leverage hurts them because they won’t be able to reduce spending as quickly. Formulas to Calculate Operating Leverage There are several different formulas for calculating operating leverage: Formula 1: Fixed Costs / (Fixed Costs + Variable Costs) The problem with this one is that most companies don’t spell out what is a fixed vs. variable cost in their filings. Formula 2: % Change in Operating Income / % Change in Sales Formula 3: Net Income / Fixed Costs Formula 4: Contribution Margin / Operating Margin In practice, we tend to use the second formula: the % change in operating income divided by the % change in sales, because it’s the easiest one to apply when you have limited information. However, the other formulas can be useful if you have additional insight into the company’s fixed vs. variable costs. How to Interpret Operating Leverage in Real Life This metric is MOST meaningful when you calculate it for companies in the same industry with roughly the same operating margins. So it doesn’t make sense to use it to compare a software company to a manufacturing company, or to compare a biotech startup to a mature media company. As a company’s operating leverage increases, each *percentage* of sales growth will translate into a higher *percentage* of operating income growth. Consider Company A, with revenue of $1 billion, operating income of $200 million, and operating leverage of 2.0x, and Company B, with revenue of $1 billion, operating income of $200 million, and operating leverage of 1.0x. "Operating leverage" means that when Company A’s revenue increases by 10%, its operating income will increase by 20%, so it will have operating income of $240 million on revenue of $1.1 billion. On the other hand, Company B’s operating income will increase by only 10%, so it will rise to $220 million on revenue of $1.1 billion. In the “Upside” case when sales increase, this is positive because Company A will earn more operating income from those additional sales. But if sales decrease, Company A is worse off because it can’t cut its expenses to match its falling sales to the same degree that Company B can. So it’s similar to debt in leveraged buyouts: more debt increases the potential rewards, but also the risk. On balance, most investors prefer companies with high operating leverage simply because it makes it easier to earn out-sized returns – but it also depends on the investment firm’s strategy, the industry, and the companies involved. RESOURCES: http://youtube-breakingintowallstreet-com.s3.amazonaws.com/105-16-Operating-Leverage.pdf http://youtube-breakingintowallstreet-com.s3.amazonaws.com/105-16-Operating-Leverage.xlsx
Outlook for High-Yield and Leveraged Finance
The high-yield bond market has rallied again in recent months after a selloff that drove yields to their highest levels since 2011. The market was hit hard in 2015 and early 2016 by worries about slowing global growth and the collapse of energy prices—which slammed the bonds of many oil and gas companies. Lately, growth fears have eased and oil prices have recouped some of their losses. But many investors remain concerned about other potential threats to high-yield, including credit tightening by the Federal Reserve, prolonged weakness in emerging-market economies and the rising tide of corporate debt maturing between 2018 and 2022. Are central bank policies, including negative interest rates in Europe, supportive or hazardous for high-yield? Which industries offer the best value prospects for investors now? On this panel, leaders in high-yield and leveraged finance will share their outlooks and strategies. Moderator Tom Braithwaite, Lex Writer, Financial Times Speakers Christopher Boyle, Managing Director and Portfolio Manager, Guggenheim Partners Peter Budko, Partner, AR Global Henry Chyung, Chief Investment Officer, Post Advisory Group Robert Kricheff, Global Strategist and High-Yield Portfolio Manager, Shenkman Capital Andrew Whittaker, Vice Chairman, Jefferies; Vice Chairman, Leucadia National Corp.
Views: 4944 MilkenInstitute
Leverage And How To Use It Properly - Real Estate Investtment Tips
For an experienced SF Bay Area real estate agent visit http://iLiveInTheBayArea.com Like me on Facebook: http://fb.com/iLiveInTheBayArea Thumbs up, favorite, share, subscribe and make a comment! One of the most hotly debated topics I discuss with my clients is the concept of using a loan to assist in a purchase. The concept of using other people's money in order to finance a purchase is called leverage....and there's quite a few reasons why this topic is debated so frequently. Some of my clients are either in their later years near retirement and don't want the responsibility of a mortgage payment. Some of them want to see a higher return and maybe don't want to tie up all their cash to buy the type of property their interested in. Some don't want a mortgage so they can have full control in case they do decide to sell later. Some just want to spread their investment around so it's not tied up in one single project. I'm going to give you a quick rundown of what I personally feel is a responsible way to look at leverage... First let me show you how using leverage can assist in both your return and your risk... To make numbers easy, let's say you have $1M to buy a property. While searching you notice you could buy a $1m that makes about $100k/year. If you so choose to buy this property all cash and sell it in 5 years for the same $1M price paid for it, you will make a fairly straightforward 10% return. But let's take a look at how much of a return you could make by putting 30% down with a 5% interest rate. Now, your mortgage payment is a bit under half of the $100k per year, so you take home only about $55,000. And of course if you sell it, you're going to have to repay the loan in full. Looking at this, your return went from 10% in an all cash deal, to a cash on cash return of over 18% with a nearly 21% internal rate of return. So how did it double? Well you have to keep in mind, you were making 10%...and you're BORROWING someone else's money at 5%... Imagine you borrow $5 from a friend who simply wants $6 in return. You then go out and buy a DVD from a store and then immediately sell it to someone else for $10. You now have made a $4 profit after you pay your friend back. This is an example of using positive leverage. Using other people's money to make a profit which you couldn't have made before. In our $1M example, this also opens up a few doors. Remember, you only spent $300k to buy this $1M property -- meaning you still have $700k left over. Now you could go and buy two more additional properties. This also helps spread your risk around. What if one of the buildings is an apartment complex, and the crime rate spikes in the area making it harder to rent...if all of your $1m is in that single property, you are now at the full mercy of what happens to just that one property. It's as if you just threw all your money into a single stock -- if that one single stock does poorly and you haven't diversified, you don't have anything else to fall back on. Of course leverage can also free up capital. As I discussed in my "Lease vs. Own" video, if you own your property outright and are looking to expand but don't have the funds, you can use leverage properly and lease the space rather than owning it, or borrow against it and expand. Again as an example, if you have a $1m property that you own outright but want to expand your business to other areas and grow, it may be sensible to sell your property to an investor and pay them rent...or it may also be sensible to refinance the property and pay a mortgage and use the proceeds to expand. Again, leverage must be responsibly. In the examples I gave, it would make no sense to have a $95k mortgage with only $100k in income. It just doesn't make sense to barely be able to cover the mortgage payment -- that's too much risk! Also in the lease vs. own example, if you CANT expand as a company, why would you want to put your property at risk by selling and leasing back or even taking out a large mortgage that may be squandered trying if here is no set expansion plan? Leverage must be used properly, and there is no exact formula as to how much can be considered risky. It is going to depend on you as an investor and it's going to depend on the local market and property conditions. However, if used properly, it's a great investment tool that can both spread your risk and increase your return...now that's good to know. Contact Davide Pio Today | SF Bay Area Real Estate http://iLiveInTheBayArea.com | 510-815-2000
Credit Market and Private Debt Predictions for 2018
Growth is on the horizon for private debt in 2017. This session will explore action-oriented ideas around sovereign and regional trends, political risk, industry shifts, changes in creditworthiness of some of the biggest figures in the market, and post-mortems on recent defaults. And, of course, a healthy rundown of lessons learned. Moderator James Mackintosh, Senior Columnist, Markets, The Wall Street Journal Speakers John Francis Barry, Chairman of the Board and CEO, Prospect Capital Management Maria Cantillon, Executive Vice President and Global Head of Alternative Asset Managers Solutions, State Street Nigel Walder, Managing Director, Bain Capital Adam Wheeler, Head of Non-U.S. Private Finance Investments, Barings
Views: 5734 MilkenInstitute
LBO Model Interview Questions: What to Expect
In this tutorial, you’ll learn about the most common LBO modeling-related questions and some tricks and rules of thumb you can use to approximate the IRR and solve for assumptions like the purchase price and EBITDA growth in leveraged buyouts. Table of Contents: 2:36 Question #1: LBO Model Walkthrough 5:34 Question #2: Ideal LBO Candidates 8:09 Question #3: How to Approximate IRR 11:46 Question #4: How to Solve for EBITDA or the Purchase Price 13:58 Question #5: How to Approximate the IRR in an IPO Exit 16:03 Recap, Summary, and Key Principles Lesson Outline: Will you get LBO-related questions in interviews? Yes, possibly, but full case studies are unlikely unless you’re interviewing for PE roles or more advanced IB roles. Interviewers now ask trickier questions about the fundamentals, they ask progressions of questions on the same topic or scenario, and they’re more likely to give you *simple* cases and numerical tests rather than complex ones. A typical progression for LBO models might be as follows: Question #1: LBO Model Walkthrough “In a leveraged buyout, a PE firm acquires a company using a combination of Debt and Equity, operates it for several years, and then sells it; the math works because leverage amplifies returns; the PE firm earns a higher return if the deal does well because it uses less of its own money upfront.” In Step 1, you make assumptions for the Purchase Price, Debt and Equity, Interest Rate on Debt, and Revenue Growth and Margins. In Step 2, you create a Sources & Uses schedule to calculate the Investor Equity paid by the PE firm. In Step 3, you adjust the Balance Sheet for the effects of the deal, such as the new Debt, Equity, and Goodwill. In Step 4, you project the company’s statements, or at least its cash flow, and determine how much Debt it repays each year. Finally, in Step 5, you make assumptions about the exit, usually using an EBITDA multiple, and calculate the MoM multiple and IRR. Question #2: Ideal LBO Candidates Price is the most important factor because almost any deal can work at the right price – but if the price is too high, the chances of failure increase substantially. Beyond that, stable and predictable cash flows are important, there shouldn’t be a huge need for ongoing CapEx or other big investments, and there should be a realistic path to exit, with returns driven by EBITDA growth and Debt paydown instead of multiple expansion. Question #3: Approximating IRR “A PE firm acquires a $100 million EBITDA company for a 10x multiple using 60% Debt. The company’s EBITDA grows to $150 million by Year 5, but the exit multiple drops to 9x. The company repays $250 million of Debt and generates no extra Cash. What’s the IRR?” Initial Investor Equity = $100 million * 10 * 40% = $400 million Exit Enterprise Value = $150 million * 9 = $1,350 million Debt Remaining Upon Exit = $600 million – $250 million = $350 million Exit Equity Proceeds = $1,350 million – $350 million = $1 billion IRR: 2.5x multiple over 5 years; 2x = 15% and 3x = 25%, so it’s ~20%. Question #4: Back-Solving for Assumptions “You buy a $100 EBITDA business for a 10x multiple, and you believe that you can sell it again in 5 years for 10x EBITDA. You use 5x Debt / EBITDA to fund the deal, and the company repays 50% of that Debt over 5 years, generating no extra Cash. How much EBITDA growth do you need to realize a 20% IRR?” Initial Investor Equity = $100 * 10 * 50% = $500 20% IRR Over 5 Years = ~2.5x multiple (2x = ~15% and 3x = ~25%) Exit Equity Proceeds = $500 * 2.5 = $1,250 Remaining Debt = $250, so Exit Enterprise Value = $1,500 Required EBITDA = $150, since $1,500 / 10 = $150 Question #5: Approximating IRR in an IPO Exit “A PE firm acquires a $200 EBITDA company for an 8x multiple using 50% Debt. The company’s EBITDA increases to $240 in 3 years, and it repays ALL the Debt. The PE firm takes it public and sells off its stake evenly over 3 years at a 10x multiple. What’s the IRR?” Initial Investor Equity = $200 * 8 * 50% = $800 Exit Enterprise Value = Exit Equity Proceeds = $240 * 10 = $2,400 “Average Year” to Exit = 1/3 * 3 + 1/3 * 4 + 1/3 * 5 = 4 years IRR: 3x over 3 years = ~45%, and 3x over 5 years = ~25% Approximate IRR: ~35% (This one’s a bit off – see Excel.) RESOURCES: https://youtube-breakingintowallstreet-com.s3.amazonaws.com/109-13-LBO-Model-Interview-Questions-Slides.pdf
US Leveraged Loan Market Analysis - April 2010
Trends/analysis of leveraged finance market during March: Returns, technicals (inflows, outflows), defaults. Plus, a look forward. Follow us Twitter: http://www.twitter.com/lcdnews LinkedIn Leveraged Loan Group: (3,300 members) http://ow.ly/1etfg Facebook: http://ow.ly/1etp5
Views: 1584 LCDcomps
Debt to Equity Ratio
What is debt to equity ratio? A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets. To learn more go to: http://www.investopedia.com/terms/d/debtequityratio.asp
Views: 7217 DrJobinsp
LBO - Returns Attribution Analysis
In this tutorial, you’ll learn about what drives the IRR or money-on-money multiple in a leveraged buyout. By http://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" You’ll also see how EBITDA growth, multiple expansion, and debt pay-down and cash generation all play a role – and what drivers make a deal look favorable or less favorable. Table of Contents: 0:48 How Do PE Firms Make Money? 5:13 Returns Attribution Analysis Formulas 7:43 Setting Up a Simple LBO Model 13:10 IRR and MoM Multiples 14:31 Returns Attribution How Do PE Firms Make Money? To make money in a leveraged buyout, one or more of the following must happen: 1) The company's EBITDA must grow. 2) There must be multiple expansion (exit EBITDA multiple is higher than the purchase EBITDA multiple). 3) A significant amount of debt must be used and repaid and/or a significant amount of cash must be generated in the same period. So yes, you CAN buy a company at one multiple and sell it at the same multiple and still earn a 20% IRR... if you have enough of the two other factors. Returns Attribution Analysis Formulas EBITDA Growth: (Final Year EBITDA – Initial EBITDA) * EBITDA Purchase Multiple Intuition: How much more do you get for your money? Multiple Expansion: (Exit Multiple – Purchase Multiple) * Final Year EBITDA Intuition: How much more value does the final EBITDA contribute? Debt Paydown and Cash Generation: Back into this by subtracting the other two above from the total returns to equity investors in the LBO. Intuition: “Everything else!” Setting Up a Simple LBO Model To test this yourself, look at the template above and fill out the assumptions for revenue, EBITDA, Pre-Tax Income, and Net Income, and then the Cash Flow Statement line items. Debt repaid each year is equal to MIN(Free Cash Flow, Previous Year's Ending Balance). Then, debt decreases by the amount that's repaid; cash increases by any FCF that's left over and was NOT used for debt repayment. IRR and MoM Multiples Calculate the Exit Enterprise Value with Final Year EBITDA * Assumed EBITDA Exit Multiple, and subtract debt and add cash to get the Proceeds to Equity Investors. IRR = (Exit Proceeds to Equity Investors / Initial Equity Contribution) ^ (1 / # Years in Model) - 1 MoM Multiple = (Exit Proceeds to Equity Investors / Initial Equity Contribution) Returns Attribution Calculate this using the formulas above. CONCLUSIONS HERE: Ideally, we would prefer nothing from multiple expansion as it's unreliable and hard to predict or take advantage of. We would also like to see more from debt paydown, because the company could afford to take on more debt in the model. If the company's growth rate were slower or its margins were lower, we might *have* to use additional debt to make the model work. So back to that question in the beginning: yes, a dividend recap is one way to make a deal work if there's no multiple expansion... but it's not the only way. Downloadable Resources http://youtube-breakingintowallstreet-com.s3.amazonaws.com/109-06-LBO-Returns-Attribution-Analysis.xlsx
Leveraged Loan Market Wrap-up - March 2010
Trends/analysis of leveraged finance market: Returns, technicals (inflows, outflows), defaults. Plus, a look forward. Follow us Twitter: http://www.twitter.com/lcdnews LinkedIn Leveraged Loan Group: (3,100+ members) http://ow.ly/1etfg Facebook: http://ow.ly/1etp5
Views: 1855 LCDcomps
99 Cents Only Stores: Another Leveraged Buyout Casualty? | Retail Archaeology
In this episode we take a look at 99 Cents Only Stores, another retailer that was purchased via a leveraged buyout and is now struggling with their debt load. We tour a store and then take a closer look at some of the products they sell. This episode's music is from the album "Electric Elevator" from Dan Mason. For more info visit https://danmason.bandcamp.com/ for more information. -=Social Media=- Twitter: @Ret_Archaeology Instagram: @Retailarchaeology Facebook: @RetailArchaeology Patreon: https://www.patreon.com/RetailArchaeology
Views: 29923 Retail Archaeology
Has Price Masked Credit Risk In the U.S. Leveraged Loan And
Until recently, pricing on the debt of speculative-grade U.S. corporate borrowers has painted an improving picture of credit risk. However, in Standard & Poor's view, credit quality for some highly leveraged companies remains fragile. Why? In this CreditMatters TV segment, Bill Chew, head of our recovery team and leveraged finance group, provides an in-depth look at the positive and negative trends shaping the space.
Views: 55 SPTVbroadcast
Fed's Powell: Carefully monitoring leveraged debt levels
At the news conference after the September FOMC meeting, Federal Reserve Chairman Jerome Powell answers reporter questions about Nellie Liang's nomination for the Fed board and corporate debt levels.
Views: 77 CNBC Television
The Hidden Dangers of Leveraged ETFs: Why Leveraged ETFs Are Not a Long-Term Bet - Part 4
Leveraged ETFs - Opportunities, Risks and Dangers. http://www.financial-spread-betting.com/Exchange-traded-funds.html PLEASE LIKE AND SHARE THIS VIDEO SO WE CAN DO MORE! How risky are leveraged exchange traded funds? These instruments are only for day trading or holding positions for a few days at most. When buying into a leveraged ETF not only are there trading costs but in some cases you also have the interest expense of the debt used to achieve the actual leverage. But why are leveraged ETFs dangerous? The issue with leveraged ETFS is that you can end up losing all your money while waiting for the ETF to move in your direction. Let's suppose that over 50 trading days, half of those days the index you're tracking moves up by 5%, and half of those days it moves down by 5%. If you are investing in a normal unleveraged exchange traded fund, at the end of that time you will still have 93.9% of your capital. As such, you can absord that and wait till it reverses. But if you're in a 3x leveraged ETF, on down days your ETF will go down by 15%. On positive days it will go up by 15%. One up-down cycle and you end up with 2.25% less of your capital. (1.15*0.85=0.9775.). Two up-down cycles, and you have lost 4.45%. After the 50 days period only 56.6% of your capital remains. Can you really recover? That's the big issue - if an index doesn't go anywhere and is range-bound, the leveraged ETF will end up underwater. And of course if the index moves in the opposite direction to your 'bet', you could end up getting wiped out rapidly. As such you only win if a move up happens swiftly... So, that's the big problem: if an index treads water, the leveraged version will lose money. And of course, if the index goes down substantially, as it could in a bear market, you could get quickly wiped out. Basically, you only win if a move up happens quickly, which I assure you is not always the case. In this series: ETFs, What is An Exchange Traded Fund? Part 1 🙌 https://www.youtube.com/watch?v=DUv4A-y52jw Main ETFs to Trade Part 2 👍👌 https://www.youtube.com/watch?v=4zecElizm4g What are Inverse ETFs? What are Leveraged ETFs? Part 3 🙌👍 https://www.youtube.com/watch?v=zfPDpq4BaUs The Hidden Dangers of Leveraged ETFs: Why Leveraged ETFs Are Not a Long-Term Bet - Part 4 https://www.youtube.com/watch?v=M7dNVJeQ9cE
Views: 4413 UKspreadbetting
Bothell Homeowner 34.7% ROI - Leveraging Debt & Creating Wealth
People create wealth in real estate by leveraging debt in an appreciating market. Leveraging debt allows you to invest a small down payment and get a great return on your investment - even if it's your primary residence that doesn't generate income. In this real-life example, a Bothell, Washington homeowner made a 5% down payment on his home, and four years later his Return on Investment is 34.7% per year! Your ROI may be the same and you don't even know it. Bob Woolverton, MCNE, CREA MCNE (Master Certified Negotiation Expert), and CREA (Certified Real Estate Analyst) Pure Real Estate 600 108th Ave NE Suite 505 Bellevue, WA 98004 206-794-8070 [email protected] http://www.purerealestate.com/about Clothing by: J. Hillburn Men's Clothier Diane Loofburrow, Personal Stylist https://dianeloofburrow.jhilburn.com
"Debt Leveraged Property in an IRA" with Nathan Long and Jason Zook
Check out our awesome webinar from last week over how to debt leverage property in your IRA! Nathan Long and Jason Zook talk about different strategies and what you can do to grow your wealth! There's still time to take advantage of the special offered at the end of the webinar! For more information, call us at 855-FUN-IRAS or visit our website at www.QuestIRA.com

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