I’ve always wanted to cover how captables are modelled. Using this github repo, I show how can we build captables, calculate expenses and EBIT, and company valuations.

Link to github repo.

Free Cash Flow:

Free cash flow (FCF) represents the cash a company generates after accounting for cash outflows to support operations and maintain its capital assets.

There are two main approaches to calculating FCF. The first approach uses cash flow from operating activities as the starting point, and then makes adjustments for interest expense, the tax shield on interest expense, and any capital expenditures (CapEx) undertaken that year.

The second approach uses earnings before interest and taxes (EBIT) as the starting point, then adjusts for income taxes, non-cash expenses such as depreciation and amortization, changes in working capital, and CapEx. In both cases, the resulting numbers should be identical, but one approach may be preferred over the other depending on what financial information is available.

EBIT

Earnings before interest and taxes (EBIT) is an indicator of a company’s profitability. EBIT can be calculated as revenue minus expenses excluding tax and interest. EBIT is also referred to as operating earnings, operating profit, and profit before interest and taxes.

Valuation

A business valuation is the process of determining the economic value of a business, giving owners an objective estimate of the value of their company. Typically, a business valuation happens when an owner is looking to sell all or a part of their business, or merge with another company.

Pre/Post Valuations

Pre-money and post-money differ in the timing of valuation. Pre-money valuation refers to the value of a company not including external funding or the latest round of funding. Post-money valuation includes outside financing or the latest capital injection.

Captable

A capitalization table is a table providing an analysis of a company’s percentages of ownership, equity dilution, and value of equity in each round of investment by founders, investors, and other owners.

Todo

  • Add how to model captables
  • How EBIT is measured
  • Formulas for measurements
  • Add info about termsheets
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