Understanding Shareholder Value through Financial Metrics PPT
This PPT slide, part of the 42-slide Finance and Valuation Basics PowerPoint presentation, presents a structured approach to understanding cash available to shareholders, derived from a company's financial statements. It emphasizes 2 main calculations: firm value and free cash flow.
At the top, the slide outlines the calculation of firm value, which is the sum of equity and debt value. This is crucial for stakeholders to assess the overall worth of the company. The formula for equity value is straightforward, defined as the stock price multiplied by the number of common shares. This section sets the foundation for understanding how shareholder value is quantified.
The right side of the slide delves into calculating free cash flows, a key metric for evaluating a company's financial health. Starting with EBIT, or Earnings Before Interest and Taxes, the slide shows a figure of $100. It then adds non-cash expenses, such as depreciation, resulting in an EBITDA of $110. This figure is further adjusted to account for taxes, yielding $66.
The slide also highlights necessary investments, including capital expenditures and working capital increases, totaling $25. After subtracting these investments from the adjusted EBITDA, the resulting free cash flow is $41. This metric is vital for potential investors as it indicates the cash a company generates after accounting for capital expenditures, which can be distributed to shareholders or reinvested in the business.
Overall, this slide serves as a concise guide for executives looking to understand the financial metrics that directly impact shareholder value. It provides a clear framework for evaluating both firm value and free cash flow, essential for informed decision-making.
This slide is part of the Finance and Valuation Basics PowerPoint presentation.
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