Insights

Cost Structure: Fixed, Variable and Semi-Variable

  • Peter Lynch

In this article we will explore quick formula edits that will facilitate toggling between fixed, variable and semi-variable expense line items. Creating a projection that allows you to select how expenses should be categorized between these three expense types on a line-by-line basis will make the overall model-building process more efficient. The alternative, of modeling each item individually, can become cumbersome.

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Modeling a Crisis

  • Peter Lynch

The objective of this article is not to present a detailed modeling exercise. The process described is intended to help develop a hypothetical framework to facilitate making difficult, but critical decisions in an uncertain time. Because it would be impossible to write an article that applies to businesses individually, this article is intended for general information purposes only.

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Purchase Price in a Stock Purchase Agreement

  • Peter Lynch

Purchase Price, in the context of an acquisition, is not as simple as it might otherwise sound. To arrive at the Purchase Price for a target company the parties involved must first agree on the value of the company. This value is often defined in a stock purchase agreement as Base Purchase Price or Initial Purchase Price.

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Working Capital Adjustment in a Purchase Agreement

  • Peter Lynch

The working capital adjustment in a stock purchase agreement can have a direct impact on the price paid for the business. Given that price is arguably the most important variable in a transaction, and that the working capital adjustment can impact price, it follows that the working capital adjustment deserves special attention. (PDF Document)

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IRR vs MOIC: A 200 Year Comparison

  • Peter Lynch

If an investment were to grow by precisely 6.7% each year for 200 years, and then lose half of its value in year 201, how would the investment record change?
An article by Jim Grant, one of my favorite financial writers and analysts, highlighted this excellent thought exercise which provides an entertaining way to explore the difference between the two most commonly cited measures of investment performance: the internal rate of return (IRR) and the multiple on invested capital (MOIC). From the article:

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