Mid standard

• Annual depreciation is 120 divided by three, or 40. Operating income and net income fall by 40 with no tax effect, accumulated depreciation rises by 40 and retained earnings falls by 40 because expense recognition reduces equity.
• Under the indirect method I add the noncash 40 depreciation back to net income in operating cash flow because the cash left through investing when the asset was bought. Without other activity, operating cash flow from this asset effect is zero and investing is minus 120.
• I check the asset roll-forward, retained earnings and the balance sheet equation because the three statements must connect. I state the no-tax assumption; with taxes, timing and deductibility would need a separate schedule rather than applying an unsupported rate.

Lessons to prepare

Mid standard

• I match unlevered cash flow to WACC, keep currency and nominal or real assumptions consistent and use a documented timing convention because a mismatched discount rate changes the object being valued. I source the inputs and show sensitivities rather than inventing a market rate.
• For perpetual growth I use next-period normalized cash flow divided by WACC minus growth, with growth below WACC because otherwise the formula has no sensible steady-state interpretation. I check reinvestment needs and compare implied multiples instead of treating the terminal year as costless growth.
• I sum discounted forecast and terminal value for enterprise value, then subtract relevant debt and debt-like claims and add nonoperating assets consistently. I check cash isn't counted twice and report a sensitivity range because a precise spreadsheet output isn't proof of a precise value.

Lessons to prepare

Mid standard

• Enterprise value pairs with an operating measure such as EBITDA or EBIT before financing; equity value pairs with an equity earnings measure. I align forecast periods and lease treatment because comparing an adjusted numerator with an unadjusted denominator distorts the multiple.
• I inspect whether the charge is truly nonrecurring, check its cash consequences and apply a consistent rule to all peers because automatically adding back every management adjustment overstates normalized earnings. I keep a bridge from reported to adjusted values.
• I show the selected peer range and sensitivities with the business differences visible because a median multiple is a reference rather than a valuation verdict. I compare the result with operating assumptions and another method, then explain the uncertainty that matters to the decision.

Lessons to prepare

Mid standard

• Operating cash is 120 plus 20 less 60 less 30 plus 10 equals 60 units because receivables and inventory tie up cash while payables defer payment. I add depreciation once because it reduced net income without a current cash outflow.
• Free cash flow here is 60 operating cash less 40 capex equals 20 units because asset purchases use cash beyond operating movements. This is a simplified equity-style operating-cash-minus-capex bridge; an enterprise valuation would require the unlevered operating tax and financing adjustments.
• I compare receivable aging, inventory turnover and supplier terms because a profitable month can still consume cash through slow collections. I reconcile each movement to schedules and forecast payment timing before recommending a collection or purchasing change.

Lessons to prepare

Mid standard

• Budget profit is 1000 times 20 less 12000 equals 8000, while actual profit is 900 times 17 less 12000 equals 3300. The miss is 4700 units because lower volume, lower realized price and higher unit cost all reduce contribution.
• I calculate volume impact as minus 100 times budget contribution of 20 equals minus 2000, price impact as 900 times minus 2 equals minus 1800, and cost impact as minus 900. These sum to minus 4700 because the chosen bridge applies price and cost changes to actual volume.
• I separate recurring driver changes from one-time timing effects because carrying the full miss forward can double-count a temporary issue. I obtain evidence from sales and operations owners, show volume and cost sensitivities, and retain the old forecast to assess forecast error later.

Lessons to prepare

Mid standard

• Next-year free cash flow is 110 times 1.02 equals 112.2, and terminal value is 112.2 divided by 0.08 equals 1402.5 units. I use next-period cash flow because the perpetuity begins after the explicit year-two cash flow.
• Enterprise value is 100 divided by 1.10 plus the sum of 110 and 1402.5 divided by 1.21, about 1340.91 units. Equity value is enterprise less 200 debt plus 50 excess cash, about 1190.91, because financing claims and nonoperating cash enter the bridge after valuing operations.
• I show WACC and growth sensitivity because terminal value supplies most of the enterprise value in this two-year case. I test normalized cash flow and reinvestment needs before accepting perpetual growth; the arithmetic is a model output and doesn't establish a recommended investment value.

Lessons to prepare