• 044 04/09/2016 Excel: =IRR() vs. =XIRR() (continued...)

    I thought it would be worthwhile to provide a follow up to my original post on this topic. In my conversations with business owners this discrepancy gets a lot of attention on account of the critical role these figures can play in a transaction (as my previous post explains).


    If you have not read the previous post I would suggest doing that now before proceeding with the material below. You can find it here: Excel: =XIRR vs =IRR

    The objective with this post is to demonstrate with the video that follows precisely what causes these differences. One thing to keep in mind as you watch is that the =XIRR() formula annualizes the IRR, whereas the =IRR() formula will return the rate of return for the period (month, quarter, year, etc.). In other words, if you measure the IRR for one month using the =IRR() formula the function will return the IRR for that month. The same exercise with the =XIRR() formula will return the annualized IRR. If this has not yet perfectly settled, don't worry, it is explained at 3:20 in the video below.
     
     
    The Excel template is available HERE.

    Click HERE to have posts like this one sent directly to your inbox.

 



  • 043 04/08/2016 FASB Announces Accounting Standards Update
    Per the image above, while it may not be the most exciting news, it's information you need to know: The Financial Accounting Standards Board (“FASB”) has issued a final standard to simplify the presentation of debt issuance costs. Most concisely, this new standard requires that the costs associated with debt issuance be presented as a direct deduction from the associated debt liability. This is in contrast to the previous approach, which called for capitalizing this expense and amortizing it over the life of the loan. This update became effective for financial statements for fiscal years after December 15, 2015, and interim periods within fiscal years by December 15, 2016. 

    I was made aware of this update on account of an acquisition we made in April of 2015, coincidentally around the same time that the FASB made this announcement initially. The opening balance sheet audit (the balance sheet presented post transaction), detailed this change in the notes that followed the financial statement. 

    As it pertains to this website, this information is most relevant to the Leveraged Buyout Model video series. It impacts the balance sheet adjustments made to record a transaction in the video titled Simple LBO. I will follow up with detailed instruction. 

    The best summary I found was from PWC (not unusual, they are a publishing powerhouse). Please see LINK.
 




 



Models are:
 
A) really boring
B) pretty sweet
C) super important
D) somewhat easy
E) kind of hard
F) fun
G) all of the above

 

 


*Answers a, b, c, d, e, f and g are all correct.