ValueWise

𝗗𝗘𝗙𝗘𝗥𝗥𝗘𝗗 𝗧𝗔𝗫 𝗔𝗦𝗦𝗘𝗧𝗦 ➡️ 𝗩𝗮𝗹𝘂𝗮𝘁𝗶𝗼𝗻 𝗔𝗹𝗹𝗼𝘄𝗮𝗻𝗰𝗲 : A company may need to establish a valuation allowance against its DTAs if: ▪️ It's uncertain whether the DTAs will be realized ▪️The company has a history of tax losses or other negative evidence The valuation allowance reduces the carrying value of the #DTAs to their expected realizable value. ➡️ Deferred Tax Assets (DTAs) represent future tax benefits that a company can claim against its taxable income. They arise when: ▪️𝗘𝘅𝗽𝗲𝗻𝘀𝗲𝘀 are recognized in financial statements before being deductible for tax purposes. ▪️𝗥𝗲𝘃𝗲𝗻𝘂𝗲𝘀 are recognized for tax purposes before being recognized in financial statements. ➡️ DTAs are assets because they: • 𝗥𝗲𝗽𝗿𝗲𝘀𝗲𝗻𝘁 𝗳𝘂𝘁𝘂𝗿𝗲 #𝘁𝗮𝘅𝘀𝗮𝘃𝗶𝗻𝗴𝘀 • Can be used to 𝗿𝗲𝗱𝘂𝗰𝗲 𝗳𝘂𝘁𝘂𝗿𝗲 𝘁𝗮𝘅 𝗽𝗮𝘆𝗺𝗲𝗻𝘁𝘀 • 𝗜𝗻𝗰𝗿𝗲𝗮𝘀𝗲 𝗮 𝗰𝗼𝗺𝗽𝗮𝗻𝘆'𝘀 𝗻𝗲𝘁 𝗮𝘀𝘀𝗲𝘁𝘀 ➡️ Examples of DTAs: ▪️𝗗𝗲𝗳𝗲𝗿𝗿𝗲𝗱 𝘁𝗮𝘅 𝗮𝘀𝘀𝗲𝘁 𝗳𝗼𝗿 𝗱𝗲𝗽𝗿𝗲𝗰𝗶𝗮𝘁𝗶𝗼𝗻: A company recognizes depreciation expense in its #financialstatements, but the tax authorities allow depreciation to be claimed in future years. ▪️𝗗𝗲𝗳𝗲𝗿𝗿𝗲𝗱 𝘁𝗮𝘅 𝗮𝘀𝘀𝗲𝘁 𝗳𝗼𝗿 𝘁𝗮𝘅 𝗹𝗼𝘀𝘀𝗲𝘀: A company incurs losses in the current year, but can carry them forward to offset future #taxableincome. DLS & Associates LLP Sumit Dhadda Harsha Ramnani CA. Neha Bhandari CA Divya Dhadda #Investment #Valuation #TaxableIncome #TaxSaving #NetAssets #DTA #TaxBenefits

EBITDA ▫️Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) is a widely used #financialmetric that provides a comprehensive picture of a company's profitability, stripping away the impact of non-operating items such as interest, taxes, and depreciation. ▫️By focusing on the core earnings generated from a company's operations, #EBITDA offers a clearer view of its ability to generate cash, service debt, and fund future growth initiatives. EBITDA = #NetIncome + #Depreciation + #Amortization + #InterestExpense + #Tax Expense ➡️ EBITDA is useful for: • Comparing companies with different capital structures or accounting methods. • Evaluating a company's core operating performance. • Identifying trends in #profitability. • Making informed #investment decisions. ➡️ Some benefits of using EBITDA include: ▪️ Simplifies comparisons: EBITDA allows for easier comparisons between companies with different capital structures or accounting methods. ▪️ Focuses on operations: EBITDA highlights a company's core operating performance, excluding non-operating items. ▪️ Identifies #cashflow potential: EBITDA can indicate a company's ability to generate cash flow from operations. ➡️ EBITDA has limitations, as it: ▪️ Ignores #capitalexpenditures and working capital requirements. ▪️ Can be influenced by accounting estimates and assumptions. However, EBITDA should not be used as the sole metric for evaluation, as it has its limitations. DLS & Associates LLP Sumit Dhadda Harsha Ramnani CA. Neha Bhandari CA Divya Dhadda #Investment #Valuation #EBITDA #NetIncome #TaxEXpense #Depreciation #Profitability

Capital Expenditure (CapEx) A capital expenditure #CapEx is the payment with either cash or credit to purchase long-term physical or fixed assets used in a business’s operations. The expenditures are capitalized on the balance sheet and are considered an investment by a company in expanding its business. ➡️ How to see company is growing or shrinking? • CapEx > Depreciation = Growing Assets • CapEx < Depreciation = Shrinking Assets ➡️ Types of CapEx • #Expansion: Investments for growth, such as new facilities or equipment. • #Replacement: Upgrades or replacements of existing assets. • #Maintenance: Routine upkeep and minor repairs. • #Technology: Investments in IT systems and infrastructure. ➡️ Accounting and Financial Implications ▪️Capitalization vs. Expense: CapEx is capitalized on the balance sheet rather than being immediately expensed on the income statement. ▪️Depreciation and Amortization: The process of allocating the cost of a tangible asset over its useful life. Depreciation applies to physical assets while amortization applies to intangible assets. ▪️Impact on Cash Flow: While CapEx can reduce cash flow in the short term due to large outlays, it is intended to generate benefits and revenue in the long term. ➡️ CapEx is funded through: •#CashReserves •#Loans • #Bonds • #EquityFinancing DLS & Associates LLP Sumit Dhadda Harsha Ramnani CA. Neha Bhandari CA Divya Dhadda #CapEx #Valuation #CapitalExpenditure #InvestmentStrategy #FinancialPlanning #BusinessInvestment

DEBT RESTRUCTURING #Debtrestructuring is the process of #renegotiating or #reorganizing a company's debt obligations to improve its financial health and avoid default. This can involve: • Extending payment periods • Reducing interest rates • Decreasing principal amounts • Swapping debt for equity • Consolidating debt ➡️ Types of debt restructuring: 1. #Informalrestructuring (out-of-court) 2. #Formalrestructuring (in-court) 3. #Debtforequityswaps 4. #Debtrefinancing 5. #Cramdowns (forcing creditors to accept reduced payments) ➡️ Benefits of debt restructuring: ▪️Improved cash flow ▪️Reduced debt service costs ▪️Enhanced #financialstability ▪️Increased investor confidence ▪️Better positioning for growth ➡️ Challenges and risks: ▪️Credit rating downgrades ▪️Stakeholder resistance ▪️Legal and regulatory complexities ▪️Potential for default ▪️Impact on business operations By restructuring debt, companies can alleviate financial pressures, improve their balance sheet, and focus on long-term growth and profitability. DLS & Associates LLP Sumit Dhadda Harsha Ramnani CA. Neha Bhandari CA Divya Dhadda #Investment #Valuation #Debtrestructuring #Financialrestructuring #Debtrefinancing #DebtManagement #DebtforEquity #Cramdowns

ASSETS RESTRUCTURING #Assetsrestructuring refers to the process of reorganizing or reconfiguring a company's assets to improve their utilization, efficiency, and value. This can involve: • Asset sales or disposals • Asset #acquisitions or purchases • Asset #mergers or #consolidations • #Assetrevaluations or impairments • #Assetredeployments or reconfigurations ➡️ Goals of assets restructuring: ▪️Improve #assetutilization ▪️Enhance #assetefficiency ▪️Increase #assetvalue ▪️Reduce asset-related costs ▪️Support business growth ➡️ Types of assets restructuring: 1. #Financialassets (e.g., investments, receivables) 2. #Operatingassets (e.g., property, equipment, inventory) 3. #Intellectualpropertyassets (e.g., patents, trademarks) 4. #Humancapitalassets (e.g., workforce, talent) ➡️ Challenges and risks: ▪️Asset valuation complexities ▪️Market volatility ▪️Regulatory hurdles ▪️Integration challenges ▪️Potential write-downs or impairment By restructuring assets, companies can optimize their asset base, improve financial performance, and support long-term growth. DLS & Associates LLP Sumit Dhadda Harsha Ramnani CA. Neha Bhandari CA Divya Dhadda #Valuation #AssetsRestructuring #AssetSales #AssetAcquisitions #AssetValuation #Investment

Divestiture A #divestiture is the sale, disposal, or separation of a company's assets, subsidiaries, or business units, often to improve financial performance, focus on core operations, or reduce debt. ➡️ Types of divestitures: 1. #AssetSale: Sale of specific assets, such as property, equipment, or intellectual property. 2. Business unit sale: Sale of a separate business unit or subsidiary. 3. #EquityCarveOut: Sale of a minority stake in a subsidiary. 4. #SpinOff: Separation of a business unit into an independent company. 5. #JointVenture: Partnership with another company to operate a specific business. ➡️ Reasons for divestitures: ▪️Improve #financialperformance ▪️Focus on core operations ▪️Reduce debt ▪️Increase shareholder value ▪️Address regulatory requirements ▪️Enhance strategic flexibility ▪️ #Bankruptcy ➡️ Best practices: • Clear strategic rationale • Thorough due diligence • Effective communication • Retention of key employees • Seamless transition planning • Post-divestiture review and evaluation DLS & Associates LLP Sumit Dhadda Harsha Ramnani CA. Neha Bhandari CA Divya Dhadda #Divestiture #InvestmentBanking #EquityCarveOut #JointVenture #AssetSale

CORPORATE RESTRUCTURING #Corporaterestructuring refers to the process of reorganizing a company's structure, operations, or assets to improve its #financialperformance, competitiveness, and #sustainability. ➡️ Goals of corporate restructuring: • Improve financial performance • Enhance competitiveness • Increase efficiency • Reduce costs • Increase #shareholdervalue • Address financial distress • Adapt to changing market conditions ➡️ Types of corporate restructuring: 1. #Financialrestructuring 2. #Operationalrestructuring 3. #Strategicrestructuring 4. #Legalrestructuring ➡️ Benefits of corporate restructuring: ▪️ Improved financial health ▪️ Increased competitiveness ▪️ Enhanced sustainability ▪️ Better alignment with market conditions ▪️ Improved management and governance ➡️ Challenges and risks: ▫️ Disruption to operations ▫️ Employee layoffs or #restructuring ▫️ Cultural changes ▫️ Integration challenges ▫️ #Financialrisks ▫️ Regulatory and legal complexities Effective corporate restructuring requires careful planning, execution, and communication to stakeholders. DLS & Associates LLP Sumit Dhadda Harsha Ramnani CA. Neha Bhandari CA Divya Dhadda #Investment #valuation #FinancialAnalysis #Corporaterestructuring #Financialrestructuring

TRADE OFF THEORY ▪️Trade-off theory or debt-equity trade-off describes the balance between #debt and #equity financing. It suggests that as a company increases its #debtfinancing, it also increases its #financialrisk, which can negatively impact its #creditrating and #stockprice. ▪️The optimal capital structure is achieved when the marginal benefit of debt financing equals the #marginalcost. ➡️ Key aspects of trade-off theory: 1. Debt-equity trade-off: Increasing debt financing reduces equity financing. 2. Cost-benefit analysis: Weighing the benefits against the costs . 3. Optimal #capitalstructure: Finding the balance that maximizes firm value. 4. #Riskreturn trade-off: Higher debt levels increase risk, but also potential returns. ➡️ Factors influencing the trade-off: 1. #Taxbenefits 2. Financial distress costs 3. Agency costs 4. Information asymmetry 5. Industry and market conditions ✔️Trade off theory is essential for understanding capital structure decisions and how companies balance debt and equity to maximize value. DLS & Associates LLP Sumit Dhadda Harsha Ramnani CA Divya Dhadda CA. Neha Bhandari #Taxbenefits #debt #equity #Riskreturn #capitalstructure #debtfinancing #creditrating

FREE CASH FLOW YIELD (FCFY) Free cash flow yield is a financial solvency ratio that compares the free cash flow per share a company is expected to earn against its market value per share. Formula: Free Cash Flow Yield= Free Cash Flow/ Market Capitalization×100% ▫️ #FreeCashFlow (FCF): It is calculated as operating cash flow minus capital expenditures. ▫️ #MarketCapitalization: It is calculated as share price multiplied by the number of shares. ➡️ Why It Is Needed? •Investment Valuation: A higher FCFY indicates that a company is generating more cash relative to its stock price • #FinancialHealth: Consistent and strong free cash flow can indicate a company is in a good financial position, capable of funding its operations, paying down debt, or returning capital to shareholders. ➡️ Benefits • Valuation Insight • Focus on Cash Generation • Investment Attractiveness • #FinancialStability • Debt Management • #Growth and Dividend Potential ➡️ Decision Making with FCF Yield: Free Cash Flow Yield is a valuable metric that provides insight into a company’s cash generation relative to its market value. 1. Evaluate the FCF Yield in absolute terms and relative to peers and industry benchmarks. 2. Analyze historical #trends, cash flow stability, and financial health. 3. Integrate FCF Yield with other #financialmetrics and qualitative factors. 4. Consider broader market conditions and alignment with your #investment strategy and goals. DLS & Associates LLP Sumit Dhadda Harsha Ramnani CA Divya Dhadda CA. Neha Bhandari #FreeCashFlow #MarketCapitalization #FinancialHealth #FinancialStability #FinancialMetrics

MERGERS AND ACQUISITIONS(M&A) #Acquisition is a company purchases another outright. A #merger is the combination of two firms, which subsequently form a new legal entity. M&A require the valuation of a company or its assets to decide how much to pay for those assets. ➡️ HOW MERGERS ARE STRUCTURED? ▫️ #Horizontalmerger: Companies in direct competition with same products and markets ▫️ #Verticalmerger: Companies at different stages of production or distribution merging ▫️ #Congenericmerger: Companies serving the same consumer base in different ways ▫️ #Marketextension merger:Companies selling same products in different markets ▫️ #Productextension merger:Companies offering related products in the same market ▫️ #Conglomeration: Companies with no common business areas merging ➡️Valuation Method: ▪️P/E Ratio ▪️Enterprise-Value-to-Sales Ratio ▪️Discounted Cash Flow ▪️Replacement Cost ➡️ WHY DO COMPANIES ACQUIRE OTHER COMPANIES? Two of the key drivers of capitalism are competition and growth.To acquire new products, intellectual property, human capital, and customer bases. By combining business activities, overall performance efficiency tends to increase. DLS & Associates LLP Sumit Dhadda Harsha Ramnani CA. Neha Bhandari CA Divya Dhadda #Valuation #Investment #Mergers #Acquisition #ValueWise