Financial statement analysis

Financial statement forecasting

Intrinsic value computation

Project cash ows

MBA220 Case #2
Value based management & more!

David J. Moore, Ph.D.

www.efcientminds.com

April 16, 2012

Financial statement analysis

Financial statement forecasting

Intrinsic value computation

Project cash ows

Outline

Financial statement analysis Financial statement forecasting Intrinsic value computation Project cash ows

Financial statement analysis

Financial statement forecasting

Intrinsic value computation

Project cash ows

Outline

Financial statement analysis Financial statement forecasting Intrinsic value computation Project cash ows

Financial statement analysis

Financial statement forecasting

Intrinsic value computation

Project cash ows

What you need to do

Liquidity, asset management, debt management, protability, market value, and DuPont measures for the company you chose in Case #1. (FSA) Repeat for the top three (by ROE) companies in the industry. (FSA) Identify improvement opportunities. (FSA, VBM)
Sample table Measure ROE PM TATR EM DSO DSI Others... Your Company Leader 1 Leader 2 Leader 3

Financial statement analysis

Financial statement forecasting

Intrinsic value computation

Project cash ows

Outline

Financial statement analysis Financial statement forecasting Intrinsic value computation Project cash ows

Financial statement analysis

Financial statement forecasting

Intrinsic value computation

Project cash ows

What you need to do

Compute IGR and SGR of your company and competitors (FSF) Estimate sales growth rate for next ve years. (FSF) Forecast income statement and balance sheet for the next ve years. (FSF) Calculate FCF for each forecast year. (MA) Include separate line items for improvement opportunities. (VBM)

Financial statement analysis

Financial statement forecasting

Intrinsic value computation

Project cash ows

Sample tables
Growth rates Company Yours Leader 1 Leader 2 Leader 3 ROA ROE RR IGR SGR

Financial statement forecasts Item Income statement items Balance sheet items FCF Improvement opportunity items t t +1 t +2 t +3 t +4 t +5

Financial statement analysis

Financial statement forecasting

Intrinsic value computation

Project cash ows

Outline

Financial statement analysis Financial statement forecasting Intrinsic value computation Project cash ows

Financial statement analysis

Financial statement forecasting

Intrinsic value computation

Project cash ows

What you need to do

Use WACC from Case #1 and 10%. (VBM) Compute intrinsic value assuming constant growth at 6.67% after year 5 under the status quo. (VBM) Compute sensitivity analysis using WACC and g. (VBM, PRA) Perform sensitivity analysis with improvement opportunities. Which one opportunity has the most impact on V0 ? (PRA, VBM) Repeat intrinsic value computation with the improvement. (VBM) Compare to current market value.

Financial statement analysis

Financial statement forecasting

Intrinsic value computation

Project cash ows

Sample tables
Company Base - 20% Base - 10% Base Base + 10% Base + 20% Opportunity 1 Opportunity 2 Opportunity n

V0

V0

V0

Status quo WACC/g 8% 9% 10% 11% 12% 5% 6.67% 8%

Improved WACC/g 8% 9% 10% 11% 12% 5% 6.67% 8%

V0

V0

Financial statement analysis

Financial statement forecasting

Intrinsic value computation

Project cash ows

Outline

Financial statement analysis Financial statement forecasting Intrinsic value computation Project cash ows

Financial statement analysis

Financial statement forecasting

Intrinsic value computation

Project cash ows

What you need to do

Make up a project for your company to take on. A new product. A new region. Something. (EPCF) Compute incremental cash ows of that project. Note any opportunity costs, externalities, and salvage values. (EPCF) Compute NPV, IRR, MIRR. Should the project be accepted? (PSC) Weave project cash ows into nancial statement forecast. (EPCF, FSF) Compute new intrinsic value.

Financial statement analysis

Financial statement forecasting

Intrinsic value computation

Project cash ows

Sample tables

Selection criteria NPV IRR MIRR WACC

Improved+new proj WACC/g 8% 9% 10% 11% 12% 5% 6.67% 8%

V0