Show the impact of a corporate restructuring on an issuer's EPS, its weighted average cost of capital and its ratio of net debt to EBITDA
The idea
Pro forma analysis shows how a restructuring changes the issuer's numbers. For an acquisition, pro forma net income is NI = acquirer's plus target's net income − after-tax interest on new debt (or forgone interest on cash) + after-tax synergies; divide by the new share count if shares are issued. Pro forma net debt ÷ EBITDA adds the target's net debt and any new borrowing, divided by combined EBITDA. For WACC, reweight at the new capital structure and use the new costs of debt and equity, both of which usually rise with leverage. The traps are deducting interest before tax, leaving out assumed debt, and applying new weights to old component costs.
In the app: 3 practice questions on this outcome, a narrated walkthrough with diagrams, spaced review that brings it back before you forget it.
Take the free diagnostic →More in Corporate Restructuring
- Set out the kinds of corporate restructuring and why issuers undertake them
- Explain how a proposed corporate restructuring is first assessed
- Apply valuation methods to companies undergoing corporate restructuring and explain the values that result
- Assess a company's investment moves such as acquisitions, joint ventures and equity stakes in other firms
- Assess how a company divests, whether through a sale or a spin off
- Assess restructurings aimed at costs or at the balance sheet