Certificate

JPM Analyst Training Program 2020

Issued to:	Rohit     Garg
Issued date:	July 31, 2020
Issued by:	AMT Training

Financial statement analysis 

Accounting fundamentals 

The aim of this session is to provide participants (particularly those who have no prior knowledge of finance) with an introduction to financial statement analysis. The income statement, balance sheet and cash flow statement are introduced, and the key interactions between the income statement and balance sheet are explained. Participants will build simple financial statements using a list of transactions.

Key topics:

• The structure of financial statements
• The income statement
• Balance sheet
• Cash flow statement
• Key links between the financial statements
• How business transactions are reflected in the financial statements

Income statement 

Throughout this module participants analyze a group of companies in the food manufacturing industry in order to calculate several income statement metrics. The matching / accruals concept and its impact on the income statement is covered in detail and the link between the income statement and the retained earnings account is investigated. Profitability is analyzed in various ways, using real companies’ financials to calculate key indicators of operating and financial performance. Participants complete a full profitability comparison for the peer group.

Key topics:

• Sales recognition
• Fixed and variable costs
• Accrual accounting and link between earnings and cash flow
• Expenses or assets - key concepts explained
• Adjusting cost of goods sold and selling, general and administrative expenses for depreciation and amortization
• Adjusting earnings for non-recurring items to produce normalized earnings estimates
• EBITDA, EBIT, net income and EPS
• Margin calculations

Working capital 

This module provides participants with an understanding of the importance of working capital in the context of a company's financing structure and cash flows. The difference between working capital and operating working capital is analyzed using several ratios. Participants complete a working capital analysis for the peer group.

Key topics:

• Inventories, receivables, payables, prepaid items and accruals
• Definition of working capital and operating working capital
• Operating working capital and the cash cycle
• Working capital ratios and day calculations

Non-current assets 

This session illustrates the difference between tangible and intangible assets and their use in a business. Participants learn about purchasing, depreciating / amortizing and selling tangible and intangible assets, and how these transactions are reflected in the financial statements.

Key topics:

• Difference between tangible and intangible assets
• Difference between identifiable intangibles and goodwill
• Finite life vs. indefinite life intangibles
• Capital expenditure and asset sales
• Depreciation, amortization and impairments
• Impairment testing
• Finding information in the financials
• Account analysis - inflows and outflows (B-A-S-E)
• Asset efficiency ratios

Debt and equity 

In this session participants learn how companies finance their operations. The characteristics of debt and equity are analyzed, including how to account for new debt and equity issues. Various kinds of debt instruments are identified, and the main equity accounts are examined. Finally some of the most important ratios are covered.

Key topics:

• Debt disclosure in published financial data
• Bank debt and bond issues
• Net debt
• The difference between authorized, issued, and outstanding shares
• Common Stock and Additional Paid-in Capital accounts
• Share issues and repurchases
• Dividends and interest payments
• Coverage and leverage ratios

Cash flow statements 

Participants learn how to build cash flow statements using historical and forecast balance sheets. The relationship between cash and changes in assets, liabilities and equity accounts is analyzed in detail, allowing participants to understand the full integration of the income statement, balance sheet and cash flow statement. The cash flow session is particularly relevant as a foundation for modeling skills.

Key topics:

• The components of the cash flow statement
• Why the cash flow statement is a reconciliation of two balance sheets
• How to divide a company's balance sheet into operating, investing and financing activities
• Calculate a cash flow statement from two balance sheets and an income statement
• Asset sales and impairments / restructuring
• EBITDA as proxy of operating cash flow and potential pitfalls

Financial modeling fundamentals 

Participants will learn how to model and integrate the income statement, balance sheet and cash flow of a fast food business using Excel. In addition to learning the steps necessary to build a three statement financial model, participants will also cover how to build models accurately and efficiently through a series of best practice modeling rules. Participants also learn how to stress-test the assumptions used, to check their work efficiently and to document it.

Key topics:

• Using keyboard shortcuts
• Setting Excel up for maximum efficiency
• Working with key modeling formulas and structures
• Building 3-statement projections
• Modeling cash and revolver
• Addressing standards for good models
• Constructing the income statement, balance sheet and cash flow statement
• Introduction to checking methodologies
• Performing audit trails
• Incorporating interest income and expense

Three statement modeling 

Through the process of building a more complex three statement model, participants are taught how to model operating cash and calculate interest using average debt and average cash balances. The class will address in detail how to work with intentional circular references. The issue of non-intentional circular references is covered and participants are taught modeling rules that are designed to help avoid them. The session is designed to expose participants to different three statement modeling styles: multi-sheet, tower, and different income statement layouts. Exposure to a mix of modeling styles will help prepare them to work on in-house models or models they may inherit from other finance professionals.

Key topics:

• Modeling operating cash, excess cash and the revolver
• Calculating interest on cash and debt balances
• Working with intentional circular references
• Avoiding non-intentional circular references
• Building models with different styles and layouts
• Calculating ratios

Financial modeling and forecasting 

Participants will learn how to build a three statement model using a detailed revenue forecast with price and volume drivers. A full debt schedule, including a cash sweep, is incorporated into the model. In addition to the main class case model, participants are given exercises to help them understand more complex modeling issues (for example, detailed depreciation schedules and working capital items). Common errors are covered from balancing a non-balancing balance sheet to debugging a model that is non-intentionally circular.

Key topics:

• Complex 3 statement models
• Modeling a detailed revenue forecast
• Modeling a cash sweep
• Modeling a detailed debt schedule include a cash sweep
• Consolidating and re-applying knowledge of circularity, iteration, and a toggle switch
• Building cash flow statements from scratch
• Troubleshooting techniques for cash flow statements
• Finding errors and integrity checking

Integrity and error checking

Common errors are covered from balancing a non-balancing balance sheet to debugging a model that is non-intentionally circular.

Key topics:

• Troubleshooting techniques for cash flow statements
• Finding errors and integrity checking
• Using Excel tools to help with integrity checking
• Finding unidentified hard numbers quickly and easily
• Using Excel’s “Jump tool” to trace through formulas with ease
• Using Excel to show the formulas underlying output
• Using Excel to find inconsistencies in the model
• Using Excel’s auditing tool to trace formulas

Valuation fundamentals 

The session lays the foundations to build a solid understanding of corporate valuation in the context of investment banking. The most common valuation methodologies are introduced, explaining the difference between a company's fundamental value, and how much an acquirer would pay for the business. The concepts of enterprise value and equity value are explained, using simple but rigorous exercises. Finally, the basics of multiple valuation and discounted cash flow valuation are introduced. Exercises are used throughout the session.

Key topics:

• The importance of valuation in the investment banking industry
• Fundamental vs. transaction value
• Overview of the major valuation methods
• Trading comparables analysis
• Discounted cash flow analysis
• Transaction comparables analysis
• LBO analysis
• Enterprise vs. equity value
• Book values vs. market values
• Derivation of enterprise values using market values
• Derivation of enterprise values using a fundamental valuation approach

Trading comparables fundamentals

The session focuses on the details of comparable company analysis. Multiples are calculated on both a historical and forecasted basis and participants will assess the value of the case company based on a given set of comparables. Public information books (“PIBs”) are used throughout the session.

Key topics:

• Calculating the company’s value
• Number of shares and value of share options
• Equity value
• Net debt calculations
• Enterprise value
• Calculating the earnings numbers
• Cleaning non-recurring items from earnings
• Calendarization issues
• Last-twelve months analysis
• Calculating a range of forward looking and historical earnings multiples
• Revenue
• EBITDA
• EBIT
• PE
• PEG
• Other value driver metrics
• Applying the results

DCF valuation 

Participants learn how to build a discounted cash flow valuation model. The session starts with an overview of the valuation methodology, and the steps required in setting up a valuation model. We then focus on the calculation of free cash flow. A detailed ratio analysis is used to establish the reasonableness of the forecasts and to identify when the target company reaches steady state. We analyze the weighted average cost of capital, calculate terminal values, using both the exit multiple method and the perpetuity growth method. We discount the free cash flows to arrive at enterprise values and calculate the implied share price. Once the valuation is complete participants perform several checks on the analysis using key ratios, and sensitivity and scenario analysis.

Key topics:

• Calculating unlevered free cash flows
• Drivers of cash flow
• Ratio analysis
• Weighted average cost of capital
• Optimal capital structure using peer analysis
• Establishing the company’s forward looking cost of debt
• Cost of equity: understanding the risk free rate, the equity risk premium and beta
• Unlevering and relevering the beta
• Calculating WACC for the case company
• Calculating the terminal value
• Perpetuity growth (Gordon Growth model) method
• Exit multiple method
• Building a discounting model
• Mid-year adjustments
• Calculating enterprise and equity values
• Sanity checks
• Reinvestment rate and ROIC
• Implied multiples and growth rates
• Percentage of value in the terminal period

Transaction comparables 

Participants are introduced to preparing a transaction multiples matrix using LTM earnings. The rationale and components of control premium and its impact on valuation are discussed. A comparable transaction analysis is performed on the case industry.

Key topics:

• Difference between trading multiples and multiples from precedent transactions
• Selection of transactions and information gathering
• Change of control issues
• Share capital and equity linked instruments
• Pensions
• Poison pills
• Control premium and synergies
• Bottom up calculation of enterprise and equity value multiples
• Practical issues with transaction comparables
• Analysis and summary output

LBO valuation 

Participants are introduced to the basic concepts underlying leveraged buyouts. The session starts by establishing why private equity firms can create value through leveraged buyouts and how the levered valuation fits into the valuation roadmap. Using a simple free cash flow forecast, participants establish how much a financial buyer could pay for the target company. Participants then build a simple LBO model.

Key topics:

• What an LBO is and how it can create value
• LBO valuation as an alternative valuation methodology
• Characteristics of suitable LBO candidates
• Estimating cash flows available to capital holders
• Estimating debt capacity
• Simplified debt / equity split for entry capital structure
• Sources and uses of funds
• Debt structure
• Estimating the exit value
• Calculating the IRR
• Sensitizing the model

M&A analysis and modeling fundamentals  

This session covers the basic steps of analyzing an acquisition - covering the impact of a deal on the financial statements with a particular focus on EPS, PE and contribution analysis. By the end of the session, the class builds an accretion / dilution model using EPS forecasts and acquisition assumptions, proforma leverage ratios and a proforma balance sheet.

Key topics:

• Big picture: what is the transaction impact on acquirer and target shareholders?
• Preparing key acquisition data
• Building a flexible funding structure
• Modeling acquisition adjustments
• Calculating the accretion / dilution effects of the deal
• Understanding the significance of relative P / Es
• Calculating and understanding contribution analysis
• Ownership issues
• Income statement contribution
• Credit issues and leverage ratios
• The strategic implication of different financing alternatives
• Synergies and synergies needed to break even
• Proforma balance sheet
• Sensitivity and scenario analysis

Pulling the analysis together 

Participants review the different valuation methodologies. Using a completed model, the class sensitizes the different models to provide a valuation range. The valuation range is put into a floating bar chart (football field). The valuation section of the pitch book is then completed.

Key topics:

• Reviewing the different valuation methodologies
• Comparable valuation
• Discounted cash flow valuation
• Equity research estimates
• Transaction comparables
• Discounted cash flow with synergies
• Levered value
• Sensitizing the models to produce a valuation range
• Creating the floating bar chart
• Complete valuation section of the pitchbook

Valuation issues 

This session covers the more advanced areas of multiples and DCF valuation. Enterprise value and income statement adjustments are addressed for both DCF and multiples, using case company examples.

Stock based compensation issues 

Key topics:

• Essentials of stock based compensation accounting
• Intrinsic value of stock based compensation
• Treasury method of accounting for stock based compensation
• Restricted stock and performance stock units
• Multiples adjustments
• DCF adjustments

Noncontrolling interests (NCI) and equity affiliates / associates issues 

Key topics:

• Accounting for NCI
• NCI valuation
• Market values
• P / E multiples
• Book values, and Price to Book multiples
• And other methodologies
• Adjustments for NCI to DCF and multiples
• Accounting for equity affiliates / associates
• Equity affiliates and core, consolidated and total EV
• Equity affiliate valuation
• Market values
• P / E multiples
• Book values, and Price to Book multiples
• And other methodologies
• Adjustments for equity affiliates to DCF and multiples

 Operating leases issues

Key topics:

• Differences between operating and financing / capital leases
• Fundamentals of operating and financing / capital lease accounting
• Operating leases adjustments to multiples
• Lease adjustment to earnings
• Lease adjustment to enterprise value for multiples and DCF
• Operating leases and DCF

Pensions issues 

Key topics:

• Fundamentals of pension accounting
• Defined benefit vs. defined contribution plans
• Funded vs. unfunded plans
• Pension deficits and surpluses
• Pension adjustments to multiples
• Pension adjustment to earnings
• Pension adjustment to enterprise value for multiples
• Pension adjustments for DCF

Quick quiz: Valuation issues

Valuation issues - sum of the parts 

Many large companies are in multiple businesses and / or have varying equity investments in other companies. It is best to analyse and value each unit separately and then sum the parts to estimate the value of the entire company. During this session participants review the consolidation rules to incorporate equity investments and measure the enterprise value of a business.

Key topics:

• Core enterprise value and total enterprise value concept
• M&A accounting and consolidation rules
• Non-controlling interests
• Equity method investments (associates / affiliates)
• Mastering the enterprise value
• How to get it right?
• How to know it is right?

DCF issues 

This session focuses on the alternative terminal value calculation approaches. Participants model a two-stage steady state terminal value and learn how returns fade to WACC over time.

Key topics

• Re-cap of free cash flows
• Mid-year discounting adjustments and valuation with flexible deal dates
• Modeling of the steady state cash flow
• Traditional terminal value approaches, reinvestment rates and pitfalls in long-term return analysis
• Understanding the value gap concept
• Disaggregating return on invested capital - profitability and efficiency
• Alternative terminal value approach: value driver
• Building a two-stage steady state terminal value model
• Sensitizing the WACC for different capital structures
• Building a graph of the optimal capital structure analysis

World of returns 

This program focuses on the analysis of returns. First, the importance of returns in relation to value creation is illustrated. The concept of invested capital is then introduced and practical examples are used to show how to calculate the return on invested capital. We then show how to incorporate explicit return assumptions in a DCF model by using the value driver formula to calculate the terminal value. The relevance of returns in an M&A context is also discussed.

Key topics

• Returns analysis
• Value creation: what it is and what its drivers are (ROE and ROIC)
• The concept of invested capital
• Return on invested capital (ROIC)
• Relationship between ROIC and WACC
• Relationship between ROIC and ROE
• Relationship between ROIC and growth
• Using ROIC in DCF valuation
• Value driver terminal value approach
• Concept of fading returns
• Impact of returns on M&A analysis
• Structuring the deal – Full deal analysis

M&A modeling 

During this session, participants build a fully integrated merger model which combines financial statement forecasts for the acquirer and the target. Practical consolidation issues are addressed. The deal analysis focuses on the financing structure, pricing, earnings and credit impact and value creation.

Key topics:

• The advantages of a full-blown merger model
• Preparing the stand-alone data for acquirer and target
• Preparing key deal data
• Building a flexible funding structure using a sources and uses of funds table
• Calculating goodwill
• Dealing with fair value adjustments to the target's net assets
• Dealing with refinancing of target's debt
• Modeling fees (advisory, debt-issuance and equity-issuance)
• Consolidating the financial statements of acquirer and target
• Synergies
• Earnings accretion / dilution and relative P / E analysis
• Assessing the value creation potential of the deal using return on invested capital (ROIC) analysis
• Contribution analysis
• Analysis at various prices (AVP)
• Net present value of synergies vs. control premium
• Identifying the maximum offer price and a suitable financing mix

LBO modeling

Participants learn how to structure an LBO and model the impact of the new financing structure. This session concentrates on understanding the implications (both modeling and deal) of the finance structuring. Participants complete a fully integrated model with an income statement, balance sheet and cash flow statement.

Key topics:

• General overview of a levered transaction: basic principles
• Drivers of value creation in a levered transaction
• How leverage increases the return on equity
• What makes a good LBO candidate?
• The concept of cash flow lending
• The lender’s perspective: risk, return and exit routes
• Structural subordination
• Financial instruments used in levered transactions
• Senior debt (revolving facility, term A, term B, term C)
• Second lien
• Mezzanine loans
• High yield bonds
• PIK notes
• Preferred shares, shareholder loans, vendor loan notes
• Ordinary equity
• Build a full LBO model from a template
• Main deal assumptions: focus on cash flow drivers and how to sanity-check preliminary assumptions
• Sources and uses of funds table
• Ownership structure
• Goodwill calculation
• Creating the opening balance sheet
• Deal adjustments, including amortization of debt issuance fees
• Tax loss carry forwards
• Cash flows available for debt servicing
• Repayment schedules for individual debt instruments
• Acceleration of debt payments using a cash sweep mechanism
• Modeling the revolving credit facility
• Circularities and the interest calculations
• PIK interest
• Credit ratios
• Calculation and interpretation of returns to the equity investors
• Calculation and interpretation of returns to mezzanine investors
• Sensitizing the outputs of the analysis
• Modeling different operational scenarios using Excel functions

M&A modeling issues 

This session addresses four key complexities in M&A models: Non-coterminus year-ends, using a flexible deal date, currency translation and the creation of a noncontrolling interest.

In order to fully benefit from the session, participants should have knowledge of the fundamentals of M&A accounting and familiarity with financial modeling.

Key topics:

• Building a M&A model: overview
• Non-coterminous years: calendarizing the financials of the target
• Dealing with calendarization issues (e.g. lack of underlying data)
• Building a flexible deal date in the M&A model
• Explanation of stub and roll-forward periods in relation to flexible deal date
• Purchase accounting and the mechanics of full consolidation
• Modeling the completion balance sheet and consolidated financial statements post-deal
• Dealing with different currencies
• Creating a noncontrolling interest at acquisition date

LBO modeling issues 

Learn how to build complex components of LBO models. Participants will gain a thorough understanding of why a component is used in practice, how it works and how to model it.

Key topics:

• Leveraged Recapitalization
• Multiple capital structure scenarios
• Management ratchets
• Incorporate a revolving credit facility in the sources and uses of funds
• Date related IRRs (XIRR)

Divestiture analysis and modeling 

This session covers the main divestiture and restructuring options available to a firm as a going concern. The motives, and cons of each structure are explained and their balance sheet impact is analyzed in detail. Spreadsheet work and real cases are used throughout the session.

Key topics:

• Overview of divestiture and restructuring alternatives available to firms
• Divestiture (private sale and IPO)
• Spin off and split-up
• Split off
• Equity carve-out
• Creating the balance sheet post-deal
• Deconsolidation process
• Calculating the gain on disposal, including tax
• Tax basis vs. book basis of investment sold
• Dealing with noncontrolling interests
• Adjusting the capital structure of the business to be divested / restructured
• Use of sale proceeds and scenario analysis
• Operating investments (capex or business acquisitions)
• Investments in financial assets
• Repayment of debt
• Repurchase of shares
• Special dividend
• EPS analysis, including using relative P / Es