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Income statement
Balance sheet
Statement of cash flows
Free cash flow
Performance measures
Financial ratio analysis
Financial Statements
Value =
FCF1
FCF2
FCF
+
+ ... +
(1 + WACC)1
(1 + WACC)2
(1 + WACC)
Weighted average
cost of capital
(WACC)
Cost of debt
Cost of equity
Income Statement
2015
2016
Sales
$3,432,000
$5,834,400
COGS
2,864,000
4,980,000
340,000
720,000
18,900
116,960
3,222,900
5,816,960
209,100
17,440
62,500
176,000
146,600
(158,560)
58,640
(63,424)
87,960
($ 95,136)
Other expenses
Deprec.
Tot. op. costs
EBIT
Int. expense
Pre-tax earnings
Taxes (40%)
Net income
2015
9,000
48,600
351,200
715,200
1,124,000
491,000
146,200
344,800
$1,468,800
2016
7,282
20,000
632,160
1,287,360
1,946,802
1,202,950
263,160
939,790
$2,886,592
6
2015
$ 145,600
200,000
2016
$ 324,000
720,000
Accruals
Total CL
Long-term debt
Common stock
Ret. earnings
Total equity
Total L&E
136,000
481,600
323,432
460,000
203,768
663,768
$1,468,800
284,960
1,328,960
1,000,000
460,000
97,632
557,632
$2,886,592
8
2016
Stock price
$8.50
$6.00
# of shares
100,000
100,000
EPS
$0.88
-$0.95
DPS
$0.22
$0.11
11
($ 95,136)
Adjustments:
Depreciation
Change in AR
Change in inventories
Change in AP
Change in accruals
Net cash provided (used) by ops.
116,960
(280,960)
(572,160)
178,400
148,960
($503,936)
12
Investing Activities
Cash used to acquire FA
Change in S-T invest.
Net cash prov. (used) by inv. act.
($711,950)
28,600
($683,350)
13
14
Summary of Statement of CF
Net cash provided (used) by ops.
($ 503,936)
(683,350)
1,185,568
(1,718)
9,000
$
7,282
15
16
17
18
Step 2
X (1 Tax rate)
Step 5
Step 4
19
= $17,440(1 - 0.4)
= $10,464.
NOPAT15
= $125,460.
20
21
22
NOWC
NOWC16
NOWC15
Operating
CA
Operating
CL
23
24
25
Uses of FCF
After-tax interest payment =
$105,600
Reduction/increase in debt =
$1,196,568
Payment of dividends =
$11,000
Repurchase/Issue stock =
$0
Purchase/Sale of ST investments
=
Total uses of FCF =
$28,600
$1,108,568
26
27
28
29
30
= NOPAT- (WACC)(Capital)
31
32
MVA (Continued)
If the market value of debt is close to the book
value of debt, then MVA is:
33
34
35
36
Income Statement
2016
2017E
Sales
$5,834,400
$7,035,600
COGS
4,980,000
5,800,000
Other expenses
720,000
612,960
Deprec.
116,960
120,000
5,816,960
6,532,960
17,440
502,640
176,000
80,000
(158,560)
422,640
(63,424)
169,056
($ 95,136)
$ 253,584
EBIT
Int. expense
EBT
Taxes (40%)
Net income
37
Cash
S-T invest.
7,282
2017E
14,000
20,000
71,632
632,160
878,000
Inventories
1,287,360
1,716,480
Total CA
1,946,802
2,680,112
939,790
836,840
$2,886,592
$3,516,952
AR
Net FA
Total assets
38
2016
$ 324,000
720,000
284,960
1,328,960
2017E
$ 359,800
300,000
380,000
1,039,800
Long-term debt
Common stock
Ret. earnings
Total equity
Total L&E
1,000,000
460,000
97,632
557,632
$2,886,592
500,000
1,680,936
296,216
1,977,152
$3,516,952
39
Other Data
2016
2017E
Stock price
$6.00
$12.17
# of shares
100,000
250,000
-$0.95
$1.01
$0.11
$5.58
$0.22
$7.91
$40,000
0.4
$40,000
0.4
EPS
DPS
Book val. per share
Lease payments
Tax rate
40
4.
5.
Liquidity
Asset Management
Debt Management
Profitability
Market Value
41
Liquidity Ratios
Can the company meet its short-term obligations
using the resources it currently has on hand?
42
QR17 =
=
CA
CL
$2,680
$1,040 = 2.58
CA - Inv
CL
$2,680 - $1,716
$1,040
= 0.93
43
Comments on CR and QR
2017E
2016
2015
Ind.
CR
2.58
1.46
2.3
2.7
QR
0.93
0.5
0.8
1.0
44
45
46
Inv. T.
COGS
Inventories
$5,800 = 3.38
$1,716
2017E
2016
2015
Ind.
3.38
4.0
4.0
6.1
47
48
DSO =
Receivables
Average sales per day
= Receivables =
Sales/365
= 45.5 days
$878
$7,036/365
Appraisal of DSO
Firm collects too slowly, and situation is getting
worse.
Poor credit policy.
DSO
2017E
45.5
2016
39.5
2015
37.4
Ind.
32.0
50
=
=
Total assets
turnover
Sales
Net fixed assets
$7,036
$837
= 8.41
Sales
Total assets
= $7,036 = 2.00
$3,517
51
2017E
2016
2015
Ind.
FA TO
8.4
6.2
10.0
7.0
TA TO
2.0
2.0
2.3
2.5
52
53
Debt ratio
=
=
Total debt
Total assets
$300 + $500 = 22.7%
$3,517
54
Leverage Ratios:
Liabilities-to-Assets Ratio
Liabilities/TA ratio =
=
=
Total liabilities
Total assets
$1,039.8 + $500
$3,517
43.8%.
55
EBIT
Int. expense
= $502.6 = 6.3x
$80
TIE =
56
D/TA
TL/TA
TIE
2017E 2016
2015
Ind.
22.7% 59.6% 35.6% 32.0%
43.8% 80.7% 54.8% 50.0%
6.3
0.1
3.3
6.2
57
58
Profitability Ratios
What is the companys rate of return on:
Sales?
Assets?
59
Profit Margins
NI
Sales
$253.6
= $7,036 = 3.6%
EBIT
Sales
$503
= $7,036 = 7.1%
60
Sales COGS
Sales
$1,236
GPM = $7,036
$7,036 $5,800
$7,036
= 17.6%
61
PM
OPM
GPM
2017E 2016
2015
Ind.
3.6% -1.6% 2.6%
3.6%
7.1
0.3
6.1
7.1
17.6
14.6
16.6
15.5
62
BEP =
EBIT
Total assets
= $502.6
$3,517
= 14.3%
63
BEP
2017E
14.3%
2016
0.6%
2015
Ind.
14.2% 17.8%
64
ROA =
NI
Total assets
= $253.6 = 7.2%
$3,517
65
NI
ROE = Common Equity
= $253.6 = 12.8%
$1,977
66
ROA
ROE
2017E
7.2%
12.8%
2016
2015
Ind.
-3.3% 6.0%
9.0%
-17.1% 13.3% 18.0%
67
68
Market-Based Ratios
Calculate and appraise the P/E and M/B ratios
Price = $12.17
EPS =
NI
Shares out.
P/E =
$253.6
250 = $1.01
= $12.17 = 12
$1.01
69
Market-Based Ratios
Common equity
BVPS = Shares outstanding
$1,977
= 250 = $7.91
Mkt price per share
M/B = Book value per share
$12.17
= $7.91 = 1.54
70
71
P/E
M/B
2017E
12.0
1.5
2016
-6.3
1.1
2015
9.7
1.3
Ind.
14.2
2.9
72
73
Profit
TA
Equity
( margin
)(turnover
)( multiplier
) = ROE
NI
Sales
Sales
TA
TA
CE
= ROE
74
Sales
TA
2015:
2016:
2017:
Ind.:
2.6%
-1.6%
3.6%
3.6%
x
x
x
x
x
2.3
2.0
2.0
2.5
x
x
x
x
TA
CE
= ROE
2.2
5.2
1.8
2.0
= 13.2%
= -16.6%
= 13.0%
= 18.0%
75
77
78