MACQUARIE BANK FINANCIAL INTELLIGENCE SERIES (TM) COMPANY VALUATION 2004 Macquarie Bank Limited This spreadsheet is one

e of a set used in a workshop presented by Macquarie. The workshop is presented internationally to finance professionals and is one of a group of workshops entitled the
MACQUARIE BANK FINANCIAL INTELLIGENCE SERIES(TM)

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This spreadsheet is designed to be used only in an academic context to illustrate concepts covered in Macquarie training courses. THIS SPREADSHEET IS NOT TO BE USED FOR ANY TRADING OR PRICING OR RISK MANAGEMENT PURPOSES. No responsibility is accepted by Macquarie Bank Limited or any part of the Macquarie Bank Group (collectively Macquarie) in respect of the accuracy of any calculation within this spreadsheet. Macquarie does not accept any obligation to correct or update this spreadsheet or to inform any user of the spreadsheet if the spreadsheet is inaccurate.

esented by Macquarie. The workshop is s one of a group of workshops entitled the

Macquarie

demic context to illustrate concepts SHEET IS NOT TO BE USED FOR ANY RPOSES. No responsibility is accepted by ank Group (collectively Macquarie) in respect et. Macquarie does not accept any obligation to r of the spreadsheet if the spreadsheet is inaccurate.

MACQUARIE BANK FINANCIAL INTELLIGENCE SERIES(TM) COMPANY VALUATION 2004 Macquarie Bank Limited

This spreadsheet models a company in its stable growth phase. Imagine you manage the company and can determine capital expenditures, borrowings dividend payouts. Complete the model to reflect policies that will keep the company in a stable growth phase (i.e. each year all assets, liabilities and cash flows grow by 3.0% pe The red tags in the leftmost columns will turn green when your answers are correct. Assumptions Growth rate (of everything) Cost of equity Cost of debt Depreciation rate Tax rate Checks Firm is in stable growth. Balance sheet balances. Both approaches to finding FCFFagree with each other. DuPont return on equity is consistent with first principles. Growth rate derived from reinvestment rate and return on equity is consistent with assumptions. Firm value derived using WACC equals sum of Equity and Debt market values. Economic value added and DCF approaches agree. Statements of Financial Position (Balance Sheet) for the year ended Current assets Cash Receivables Inventories Total current assets Non-current assets Property, plant and equipment Total non-current assets Total assets Curent liabilities Payables Total current liabilities Non-current liabilities

Interest bearing liabilities Total non-current liabilities Total liabilities Net assets Equity Non-cash working capital as at the year ended Non-cash current assets Receivables Inventories Total non-cash current assets Current liabilities Payables Total current liabilities Net non-cash working capital Statements of Financial Performance (Income Statement) for the year ended Revenue from ordinary activities Operating expenses Selling, general and administrative expenses Depreciation Earnings before interest and taxes Borrowing costs Profit from ordinary activities before income tax expense Income tax expense due to profit from ordinary activities Profit from ordinary activities after income tax expense Net profit/(loss) after income tax expense Statements of Cash Flows for the year ended Cash flows from operating activities Net income Depreciation (Increase)/Decrease in working capital Net cash flows from/(used in) operating activities Cash flows from investing activities F G Payments for property, plant and equipment Net cash flows from/(used in) investing activities

Cash flows from financing activities [excluding dividends] F G Proceeds from long term borrowings Net cash flows from/(used in) financing activities [excluding dividends] Net increase/(decrease) in cash held if no dividends paid Cash at the beginning of the financial period F G Dividends paid Cash at the end of the financial period Free cash flow to equity [FCFE] for the year ended Net profit/(loss) after income tax expense Depreciation Increase/(Decrease) in debt CAPEX (Increase)/Decrease in working capital Total free cash flow to equity Free cash flow to the firm [FCFF] for the year ended Method 1 FCFE Interest*(1-tax) -New debt Total FCFF Method 2 EBITDA -EBIT*tax rate CAPEX Change in working capital Total FCFF

F F F F F F

G G G G G G

F F F F

G G G G

F F F F F

G G G G G

G G G G

Market value of operations Market value (MV) of equity = Value of FCFEs to perpetuity Free cash flow to debt [FCFD = FCFF - FCFE] Market value (MV) of debt = Value of FCFDs to perpetuity Market value of firm = Market value of equity + market value of debt Weighted average cost of capital [WACC]

G G

WACC [(MV of equity * cost of equity + MV of debt * cost of debt) /(MV of equity + MV of debt)] Market value of firm = Value of FCFFs to perpetuity Note: The firm value in $G$123 should match the firm value in $G$119. Returns Return on Equity [Net profit this period/Book value of equity at end of last period] Non-cash return on Equity [Net Income this period/(Book value of equity at end of last period less cash)] Dupont Return on Equity EBIT/Sales [Operating margin] Sales / Assets [Asset turn] Interest expense / Assets [Interest expense rate] Assets / Equity [Financial leverage] (1-t) [Tax retention] (Operating margin* asset turn - interest expense rate) * Financial leverage * tax retention Note: The Dupont return on equity in $G$136 should match the actual return on equity in $G$127. Growth rate = Equity reinvestment rate * Return on Equity reinvestment rate [1 - FCFE/Net Income] Equity reinvestment rate * Non-cash return on equity Note: The equity reinvestment rate * Return on Equity on $G$141 should match the actual growth rate in $E$13. Economic value added Non-cash return on equity Cost of equity Economic value added in this period [Equity less cash at end of preceding period * (Return on Equity - Cost of Equity)] Economic value added in perpetuity Book value of equity less cash Market value of equity = Book value of equity + Economic value added in perpetuity Note: The market value of equity derived from the EVA approach in $G$150 should match that obtained by

G G G G G G

G G

G G

G G G G

the DCF approach in $G$116. Multiples G G G G G G G G Enterprise value (EV) EBITDA EV / EBITDA Market value of equity Net income Number shares Market price of equity per share Earnings distributed per share PE = Share price / earnings per share

le growth phase. ermine capital expenditures, borrowings and ct policies that will keep the company in a iabilities and cash flows grow by 3.0% per year). een when your answers are correct. 3% 15% 8% 10% 33% Error Ok Ok Ok Error Ok Ok 2002 ($m) 5.00 56.00 10.00 71.00 240.00 240.00 311.00 48.00 48.00 2003 ($m) 116.10 57.68 10.30 184.08 216.00 216.00 400.08 49.44 49.44 2004 ($m) 229.52 59.41 10.61 299.54 194.40 194.40 493.94 50.92 50.92 Yearly increase

97.7% 3.0% 3.0% 62.7% -10.0% -10.0% 23.5% 3.0% 3.0%

15.00 15.00 63.00 248.00 248.00 Ok ($m) 56.00 10.00 66.00 48.00 48.00 18.00

15.00 15.00 64.44 335.64 335.64 Ok 2003 ($m) 57.68 10.30 67.98 49.44 49.44 18.54 2003 ($m) 256.00 (100.00) (24.00) 132.00 (1.20) 130.80 (43.16) 87.64 87.64 2003 ($m) 87.64 24.00 (0.54) 111.10

15.00 15.00 65.92 428.02 428.02 Ok 2004 ($m) 59.41 10.61 70.02 50.92 50.92 19.10 2004 ($m) 263.68 (103.00) (21.60) 139.08 (1.20) 137.88 (45.50) 92.38 92.38 2004 ($m) 92.38 21.60 (0.56) 113.42

0.0% 0.0% 2.3% 27.5% 27.5%

3.0% 3.0% 3.0% 3.0% 3.0% 3.0%

3.0% 3.0% -10.0% 5.4% 0.0% 5.4% 5.4% 5.4% 5.4%

5.4% -10.0% 3.0% 2.1%

undefined - undefined

ing dividends] undefined 111.10 5.00 116.10 2003 - undefined 113.42 2.1% 116.10 2221.9% undefined 229.52 97.7% 2004 undefined undefined undefined undefined undefined undefined 2003 2004 undefined undefined undefined undefined

undefined undefined undefined undefined undefined Ok Ok

market value of debt

he firm value in $G$119.

Ok

Ok

Error

Ok

100