Modeling Monday

Today we continue to build on the financial modeling segment of the IncuBanker. As always, we try to provide relevant content in an easy to digest format. If you enjoy our material  and want access to our entire vault of financial modeling prep as well as tons of other content, join the IncuBanker and get started!

continued from last week…..

Warrants & Other Convertible Securities

  • Use ctrl+F to search for: “warrants”, “convertible” and “conversion”
  • Check the balance sheet for any notes in the debt section and review the notes to see if any convertible securities are mentioned
  • Check the equity section of the balance sheet for any line item referencing convertible securities of any kind

Note: for detailed instruction on how to calculate dilution from options, warrants and convertible securities, see Section 3 of our Introduction module By following these steps you should be able to get everything you need to calculate market cap.

Preferred Shares

To find out if a company has preferred shares, use ctrl+F to search for “preferred” and “pref”. Also, double check the balance sheet for any line items that look like they may be preferred securities.

Though preferred shares pay dividends, from a valuation perspective we normally treat them like debt in the sense that we use book value as opposed to market value. The reasoning here is that typically if I company wants to buy back its outstanding preferred shares, it needs to pay par value. In some cases, the preferred shares will not be publicly traded, and in this case you have no choice but to use book value.

Though book value is the more common approach, using market value is technically more accurate, so if you have time and the information is readily available, go for it. If you intend to go this route, you can first determine if the preferred shares are publicly traded by:

  • Checking the balance sheet for any notes to the financial statements on the relevant line items
  • Google “preferred shares” + the ticker for the common shares

If they are public, you then simply calculate the total value by multiplying the number of preferred shares by the current market price for each series of preferred shares outstanding.

Preferred Shares & Enterprise Value

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