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Review
How do we project the pro forma financial statements?
◦ Growth rate
◦ Financial Ratios
◦ T-account
◦ Other inputs / assumptions
Don’t use return as assumption: ROA, ROE and ROIC are simplest measures
of a company’s overall performance, but have some drawbacks
◦ Management can adjust – improve or manipulate – some B/S or I/S items more easily
than others
If the growth in sales exceeds the sustainable growth rate, the company
needs more cash! How to get some?
Change capital structure (leverage) • Improve ROE
• Increase/decrease Debt • Increase profitability – how?
• Issue/repurchase Equity • Increase efficiency – how?
Invested Capital
Non Current Assets LT Bank Loan x
NWC
PP&E Gross x TOTAL LIABILITIES XX
Less: Acc. Dep. x Shareholders Equity
PP&E (Net) x Owners Capital x
Intangible Assets x Net Fixed Retained Earnings x
Less: Acc. Amort. x Assets Less: Dividends x
Intangible Assets (Net) x TOTAL OE XX Equity
TOTAL ASSETS XX TOTAL LIABILITIES + SHE XX
NP trade 0 0 127
Accounts Payable AP 213 340 376
Accrued Expenses AE 42 45 75
Loans 160 400 610
Total Liabilities 415 785 1,188
Net worth 504 372 449
Liabilities & Net Worth 919 1,157 1,637
Margin
Profitability (NI/Sales) 2.1% 2.0% 1.7% 1.9%
Turnover
Activity (Sales/Assets) 3.2 3.0 2.8 3.0
Leverage
Leverage (Assets/Equity) 1.8 3.1 3.6 2.9
Tax
1993 1994 1995 average EBT Tax Rate Tax
Net Sales 100.00% 100.00% 100.00% 50 15% 8
25 25% 6
COGS 75.4% 75.8% 75.8% 75.6% 25 34% 9
Gross Margin 24.6% 24.2% 24.2% 24.4% 41 39% 16
Operating Expenses 21.3% 20.6% 20.8% 20.9% 141 38
Operating Margin 3.3% 3.6% 3.4% 3.5%
Dr Net Worth Cr
BOY
- +
Dividend Retained earning (NI) From the Net income of 1996
EOY
Sources:
Accounts Payable 524
Accrued Expenses 83
Current Portion LTD 20
Current Liabilities 626
Term loan 80
Net Worth 551
Liabilities & NW 1,258
Funds needed from Northwestern National Bank 568 Plug:
Funds needed = Total Asset – Total
Liabilities & NW
Questions?