|Finance S2 — Cheat Sheet
HEC PARIS · FINANCE SPECIALIZATION 2026 · SESSION 2

Study Companion — Cheat Sheet

Asset Management (Apr 20) · Valuing Intangible Assets (Apr 23) · Mergers & Acquisitions (Apr 24)

✓Exam Scope at a Glance

Module 1 — Asset Management
★ HIGH200-Year Asset Returns & Risk Premium
★ HIGHEfficient Frontier & CML
★ HIGHCAPM / SML / Beta
★ HIGHFactor Models (FF3, Carhart 4)
★ HIGHMarket Efficiency & Limits to Arbitrage
★ HIGHNamed Cases (Porsche/VW, GameStop, Riverside)
✕ NOT ON EXAMOptions & Greeks
Module 2 — Intangibles
★ HIGH4 S's of Intangibles (Haskel & Westlake)
★ HIGHExpensing vs. Capitalising R&D
★ HIGHROIC Adjustment (BioTechCo worked case)
★ HIGHGoodwill & PPA
● MEDFinancing Intangibles / NOLV
● MEDDual-Class Shares, Earn-Outs, CVRs
Module 3 — M&A
★ HIGHDeal Structuring 2×2 Matrix
★ HIGHEV-to-Equity Bridge (all components)
★ HIGHSmith & Wesson Worked Case
★ HIGHAuction Process (8 steps)
★ HIGHPublic M&A / Mandatory Bid (30%)
● MEDDefense Tactics (Poison Pill, White Knight)
★ HIGHBridge Loan Financing (Air Liquide)
● MEDLocked Box vs. Completion Accounts

#Numbers to Remember

Module 1U.S. equity premium (1900–2020)4.3% / yr
Module 1Bond premium over bills~1% / yr
Module 1Short-selling: initial margin50%
Module 1Short-selling: maintenance margin30%
Module 1Avg. individual investor portfolio size4 stocks
Module 1Home bias (individual investors)90%
Module 1Annual portfolio turnover (individuals)75%
Module 1Fama-French size premium (SMB)~2% / yr
Module 1Fama-French value premium (HML)~3.5% / yr
Module 1Momentum premium (WML)~7% / yr
Module 2BioTechCo reported ROIC43.9%
Module 2BioTechCo adjusted ROIC29.6%
Module 2Apple FY24 gross cash$156.6B
Module 2Apple FY24 net debt−$50B
Module 2CompUSA trademark liquidation multiple0.01×
Module 2Danskin trademark liquidation multiple0.23×
Module 2Pharma R&D amortisation life8–10 yrs
Module 2Tech/software R&D amortisation life3–5 yrs
Module 3Mandatory bid threshold (France/UK)30%
Module 3Typical acquisition premium20–40%
Module 3Break-up fee (standard)2–3% of EV
Module 3Reverse termination fee3–8% of EV
Module 3R&W insurance premium2–3% of limit
Module 3M&A deals that destroy value~70%
Module 3Air Liquide / Airgas bridge loan$12B
Module 3Smith & Wesson announced EV$1,800M
Module 3Smith & Wesson equity value (after bridge)$1,300M

∑All Formulas

MODULE 1 — ASSET MANAGEMENT
Portfolio Theory
Portfolio Return
E(Rp) = Σ wᵢ · E(Rᵢ)
Weighted average of individual asset returns
Portfolio Variance (2 assets)
σ²p = w₁²σ₁² + w₂²σ₂² + 2w₁w₂σ₁σ₂ρ₁₂
ρ₁₂ = correlation between assets 1 and 2
Sharpe Ratio
S = (E(Rp) − Rf) / σp
Excess return per unit of total risk
Information Ratio
IR = α / σ(ε)
Active return per unit of active risk (tracking error)
CAPM
CAPM Expected Return
E(Rᵢ) = Rf + βᵢ · [E(Rm) − Rf]
βᵢ = Cov(Rᵢ, Rm) / Var(Rm)
Beta
β = Cov(Rᵢ, Rm) / σ²m
Systematic risk relative to the market
Jensen's Alpha
α = Rp − [Rf + β(Rm − Rf)]
Positive α = outperformance vs. CAPM prediction
Factor Models
Fama-French 3-Factor
E(Rᵢ) = Rf + β₁·MKT + β₂·SMB + β₃·HML
SMB = small minus big; HML = high minus low (book/market)
Carhart 4-Factor
E(Rᵢ) = Rf + β₁·MKT + β₂·SMB + β₃·HML + β₄·WML
WML = winners minus losers (momentum)
Options
Put-Call Parity
C − P = S₀ − PV(K)
C = call price, P = put price, S₀ = spot, K = strike
Black-Scholes Call
C = S₀N(d₁) − Ke^(−rT)N(d₂)
d₁ = [ln(S/K) + (r + σ²/2)T] / (σ√T); d₂ = d₁ − σ√T
Straddle Breakeven
Upper: K + (C + P) | Lower: K − (C + P)
Profit if |S_T − K| > total premium paid
MODULE 2 — VALUING INTANGIBLES
ROIC Adjustment
R&D Asset
R&D Asset = Σ [R&D_t × (n − t) / n]
n = amortisation life; t = years ago; sum over n years
Adjusted Invested Capital
Adj. IC = Reported IC + R&D Asset
Adds the capitalised R&D asset back to the balance sheet
Adjusted NOPAT
Adj. NOPAT = (EBIT − R&D + Amort.) × (1 − t)
Replace R&D expense with amortisation of R&D asset
Adjusted ROIC
Adj. ROIC = Adj. NOPAT / Adj. IC
Always lower than reported ROIC for growing R&D spenders
Goodwill
Goodwill
Goodwill = Purchase Price − FV of Net Identifiable Assets
Residual after PPA; not amortised — annual impairment test
Intangible Valuation
Relief from Royalty
Value = Σ [Revenue_t × Royalty Rate_t / (1 + WACC)^t]
Used for trademarks and technology; royalty rate from market data
Capital Structure
Net Debt
Net Debt = Gross Debt − Cash & Equivalents
Negative net debt = net cash position (e.g., Apple)
MODULE 3 — MERGERS & ACQUISITIONS
EV Bridge
Equity Value from EV
Equity Value = EV − Net Debt − Minorities − Contingencies ± WC Adj.
Each item is negotiated in the SPA; WC adj. vs. normalised WC
Enterprise Value (Comps)
EV = EV/EBITDA × LTM EBITDA
LTM = last twelve months; multiple from comparable companies
Valuation
DCF Enterprise Value
EV = Σ [FCF_t / (1+WACC)^t] + TV / (1+WACC)^n
TV = FCF_n × (1+g) / (WACC − g); terminal value dominates
WACC
WACC = (E/V)·Ke + (D/V)·Kd·(1−t)
E = equity, D = debt, V = E+D; Kd = after-tax cost of debt
Synergies
Value Created for Acquirer
Value Created = Total Synergies − Premium Paid
If premium > synergies: deal destroys acquirer value
Premium Paid
Premium = Price Paid − Standalone Value
Typically 20–40% above unaffected share price
Deal Pricing
Accretion / Dilution
Accretion = (Acquirer EPS post-deal − Acquirer EPS pre-deal) / Pre-deal EPS
EPS accretion ≠ value creation; the EPS fallacy

⊕Key Cases & Worked Examples

Module 1★ HIGH
Riverside Memorial Hospital
Endowment portfolio construction: 60/40 equity/bond allocation with 5% annual spending rule. Demonstrates liability-matching and the risk horizon paradox — long horizon does not always mean more equity.
Module 1★ HIGH
Harvard Management Company
Institutional asset management: HMC shifted from internal management to external managers after 2008. Illustrates agency costs in asset management and the difficulty of beating benchmarks consistently.
Module 1★ HIGH
Porsche / VW Short Squeeze (2008)
Porsche accumulated a hidden economic position in VW via derivatives (call options), then revealed it — causing a short squeeze that briefly made VW the world's most valuable company. Short sellers faced unlimited losses.
Module 1● MED
GameStop (2021)
Retail investors (WallStreetBets) coordinated a short squeeze on GameStop, forcing hedge funds with large short positions to cover at massive losses. Illustrates limits to arbitrage and the power of coordinated retail trading.
Module 2★ HIGH
BioTechCo (Textbook Worked Case)
Pharma firm with $100M annual R&D. Reported ROIC = 43.9%; adjusted ROIC (capitalising R&D over 10 years) = 29.6%. The 14.3pp gap is entirely due to accounting treatment. Key exam calculation.
Module 2● MED
Apple FY2024
Apple holds $156.6B gross cash but $106.6B gross debt → net debt of −$50B (net cash). Illustrates the Corporate Savings Glut: intangible-intensive firms accumulate cash because they cannot borrow against their assets.
Module 2● MED
Levi Strauss (Collateral)
Levi Strauss used its trademark as collateral for a secured loan — one of the few cases where an intangible asset was accepted as primary collateral. The brand's high redeployability (could be licensed to any apparel manufacturer) made it bankable.
Module 2● MED
BMS / Celgene CVR (2019)
Bristol-Myers Squibb acquired Celgene for $74B. Included a $9/share CVR tied to FDA approval of three drugs (ozanimod, liso-cel, ide-cel). Illustrates how CVRs bridge valuation gaps in pharma M&A.
Module 3★ HIGH
Smith & Wesson (Textbook Worked Case)
Hypothetical acquisition at $1,800M EV (12× EBITDA). After bridge: −$320M debt, +$45M cash, −$85M pension deficit, −$95M earn-out PV, −$45M transaction costs = $1,300M equity value. EV was 38% above equity value.
Module 3● MED
AB InBev / SABMiller (2015–16)
$107B deal — largest M&A deal in brewing history. Financed with $75B bridge loan, then refinanced with bonds and equity. Illustrates bridge loan mechanics and the importance of securing financing before announcement.
Module 3★ HIGH
Air Liquide / Airgas (2015–16)
$13.4B cash acquisition. $12B bridge loan closed in May 2016, then refinanced: €3B Eurobond (Jun), $4.5B Yankee bond (Sep), €3.3B rights issue (Oct). Bridge fully repaid by end 2016.
Module 3★ HIGH
Porsche / VW (Mandatory Bid Threshold)
Porsche carefully managed its VW stake below the 30% mandatory bid threshold in Germany, using derivatives to build economic exposure without triggering a mandatory offer. When revealed, VW shares surged 400% in two days.
HEC Paris · Finance Specialization 2026 · Session 2 · Study Companion Cheat Sheet · Generated May 2026
Content sourced from lecture slides, textbook chapters (Modules 1, 6, 7), EMBA Week 2 Study Guide, Cheat Sheet, and Mock Exam.