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Assumptions for Forecasting Model Assumption Income Statement Sales Will grow at 5%, based on input from management Cost of Sales 52% of sales, little better than historical average Selling, General & Admn. Expenses 29% of sales, based on expected worsening Depreciation 8% of Gross PP&E, based on analysis of depreciation schedules Other Net (Income)/ Expenses -0.7% of sales, based on historical average Interest Income Calculate based on average balance and interest rate specified later Interest Expense For STD calculate based on average balance and interest rate specified l For LTD interest expense will remain unchanged at $13.5 million Income Taxes 35% of pre-tax income Balance Sheet Assets Cash and Marketable Securities 2.1%, of sales based on historical average Accounts Receivable 8.4% of sales, based on historical average Inventories 8.8% of sales, based on historical average Other Current Assets 7.6% of sales, based on historical average Property, Plant and Equipment, Gross Will grow at 11% per year, based on discussion with management Accumulated Depreciation Calculated from other items Property, Plant and Equipment, Net Calculated from other items Other Non-Current Assets Will grow at 10% per year, based on discussion with management Liabilities and Shareholders' Equity Accounts Payable 6.1% of sales, same as historical average Short-Term Debt Hold level constant at year-end 2008 level Other Current Liabilities 8.3% of sales, same as 2008 Long-Term Debt Will remain unchanged at 2008 level Deferred Income Taxes 1.4% of sales, based on historical average Other Non-Current Liabilities 7.6% of sales, based on historical average Paid-In Capital Will remain unchanged at 2008 level Retained Earnings Calculated from other items Other Assumptions Dividend payout ratio 40%, based on discussion with management Interest on short-term debt 7%, based on economic forecast Interest on long-term debt Rates embedded in existing debt, annual expense $13.5 million Interest on cash & marketable securities 6%, based on economic forecast Number of shares outstanding Will remain unchanged P/E ratio Will decline to 16 in 2009 and then improve to 18, 20, and 22 in the fol

Forecasting Unbalanced Balance Sheets

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Page 1: Forecasting Unbalanced Balance Sheets

Assumptions for Forecasting Model

AssumptionIncome StatementSales Will grow at 5%, based on input from managementCost of Sales 52% of sales, little better than historical average Selling, General & Admn. Expenses 29% of sales, based on expected worsening Depreciation 8% of Gross PP&E, based on analysis of depreciation schedulesOther Net (Income)/ Expenses -0.7% of sales, based on historical averageInterest Income Calculate based on average balance and interest rate specified laterInterest Expense For STD calculate based on average balance and interest rate specified later

For LTD interest expense will remain unchanged at $13.5 millionIncome Taxes 35% of pre-tax income

Balance SheetAssetsCash and Marketable Securities 2.1%, of sales based on historical averageAccounts Receivable 8.4% of sales, based on historical averageInventories 8.8% of sales, based on historical averageOther Current Assets 7.6% of sales, based on historical averageProperty, Plant and Equipment, Gross Will grow at 11% per year, based on discussion with managementAccumulated Depreciation Calculated from other itemsProperty, Plant and Equipment, Net Calculated from other itemsOther Non-Current Assets Will grow at 10% per year, based on discussion with management

Liabilities and Shareholders' EquityAccounts Payable 6.1% of sales, same as historical averageShort-Term Debt Hold level constant at year-end 2008 levelOther Current Liabilities 8.3% of sales, same as 2008Long-Term Debt Will remain unchanged at 2008 levelDeferred Income Taxes 1.4% of sales, based on historical averageOther Non-Current Liabilities 7.6% of sales, based on historical averagePaid-In Capital Will remain unchanged at 2008 levelRetained Earnings Calculated from other items

Other AssumptionsDividend payout ratio 40%, based on discussion with managementInterest on short-term debt 7%, based on economic forecastInterest on long-term debt Rates embedded in existing debt, annual expense $13.5 millionInterest on cash & marketable securities 6%, based on economic forecastNumber of shares outstanding Will remain unchangedP/E ratio Will decline to 16 in 2009 and then improve to 18, 20, and 22 in the following years

Page 2: Forecasting Unbalanced Balance Sheets

Scenario SummaryCurrent Values: Optimistic Pessimistic

Changing Cells:$J$6 5.0% 7.0% 3.0%$J$7 50.0% 49.0% 51.0%$J$10 29.0% 28.0% 30.0%$J$33 8.0% 7.0% 9.0%

Result Cells:2016 NI $150.53 $189.05 $114.84

EPS $3.26 $4.09 $2.49 D/S $1.30 $1.64 $0.99 ROE 16.9% 20.3% 13.6%

2017 NI $158.48 $206.03 $115.23 EPS $3.43 $4.46 $2.49 D/S 22.0 22.0 22.0ROE 16.1% 19.6% 12.6%

Notes: Current Values column represents values of changing cells attime Scenario Summary Report was created. Changing cells for eachscenario are highlighted in gray.

Page 3: Forecasting Unbalanced Balance Sheets

Income Statement and Balance Sheet for Vitex Corp.

Income Statement ($ Million)Historical period Forecast Period

2013 2014 2015Sales $1,334.4 $1,401.1 $1,471.2 Cost of Sales $667.0 $700.6 $735.6 Gross Operating Income $667.4 $700.56 $735.59

Selling, General & Admn. Expenses $373.3 $406.32 $426.64 Depreciation $75.2 $78.89 $85.20 Other Net (Income)/Expenses ($8.2) ($9.81) ($10.30) EBIT $227.1 $225.15 $234.04

Interest (Income) ($2.0) ($1.73) ($1.81)Interest Expense $23.7 $19.41 $16.23 Pre-Tax Income $205.4 $207.47 $219.62

Income Taxes $72.6 $72.62 $76.87 Net Income $132.8 $134.86 $142.75

Dividends $40.1 $53.94 $57.10 Addition to Retained Earnings $92.7 $80.91 $85.65

Balance Sheet ($ Million)AssetsCash and Marketable Securities $28.4 $29.42 $30.89 Accounts Receivable $120.1 $117.69 $123.58 Inventories $116.8 $123.30 $129.46 Other Current Assets $97.5 $106.49 $111.81 Total Current Assets $362.8 $376.90 $395.75

Property, Plant and Equipment, Gross $913.1 $986.15 $1,065.04 Accumulated Depreciation $427.9 $506.79 $592.00 Property, Plant and Equipment, Net $485.2 $479.36 $473.04

Other Non-Current Assets $456.3 $501.93 $552.12 Total Non-Current Assets $941.5 $981.3 $1,025.2

Total Assets $1,304.3 $1,358.2 $1,420.9

Liabilities and Shareholders' EquityAccounts Payable $80.5 $85.5 $89.7 Short-Term Debt $110.3 $58.6 $19.5 Other Current Liabilities $111.3 $112.1 $117.7 Total Current Liabilities $302.1 $256.2 $226.9

Long-Term Debt $218.1 $218.1 $218.1 Deferred Income Taxes $12.7 $19.6 $20.6 Other Non-Current Liabilities $94.5 $106.5 $111.8

Page 4: Forecasting Unbalanced Balance Sheets

Total Liabilities $627.4 $600.4 $577.4

Paid-In Capital $44.8 $44.8 $44.8 Retained Earnings $632.1 $713.0 $798.7 Total Shareholders' Equity $676.9 $757.8 $843.5

Total Liabilities and Shareholders' Equity $1,304.3 $1,358.2 $1,420.9

Discretionary Funding Need (DFN)

Other DataStock price (year-end) $51.40 $46.71 $55.63 Average number of shares outstanding (millions) 46.2 46.2 46.2

Financial IndicatorsValuation RatiosEPS $2.87 $2.92 $3.09 Dividend per Share $0.87 $1.17 $1.24 P/E Ratio 17.9 16.0 18.0P/B (price to book) Ratio 3.5 2.8 3.0Dividend Payout Ratio 30% 40% 40%

Profitability RatiosReturn on Equity (ROE) 21.2% 18.8% 17.8%Return on Sales (ROS) 17.0% 16.1% 15.9%

Growth RatesEPS Growth Rate 1.4% 1.5% 5.9%Dividend Growth Rate 2.1% 34.5% 5.9%Sales Growth Rate 2.6% 5.0% 5.0%EBIT Growth Rate 3.7% -0.9% 3.9%Net Income Growth Rate 0.1% 1.5% 5.9%

Liquidity RatiosCurrent Ratio 1.20 1.47 1.74Quick Ratio 0.49 0.57 0.68

Operating Efficiency RatiosInventory Turnover Ratio 5.7 5.8 5.8Receivable Turnover Ratio 11.1 11.8 11.9

Leverage RatiosTotal Debt to Total Capitalization 32.7% 26.7% 22.0%Long-Term Debt to Total Capitalization 21.7% 21.1% 21.1%Total Debt to Equity 48.5% 36.5% 28.2%

Coverage RatiosTimes Interest Earned (TIE) 9.6 11.6 14.4

Page 5: Forecasting Unbalanced Balance Sheets

Cash Coverage Ratio 12.8 15.7 19.7

EBIT$252.59

1% 201.94129448482% 214.05325437393% 226.52673591584% 239.36886240465% 252.58682662996% 266.18789087697% 280.17938692648% 294.56871605459% 309.3633490332

10% 324.570826129911% 340.1987571075

Page 6: Forecasting Unbalanced Balance Sheets

Forecast Period Forecasting2016 2017 Factor

$1,544.7 $1,622.0 5.0%$772.4 $811.0 50.0%

$772.37 $810.99

$447.97 $470.37 29.0%$92.02 $99.38 8.0%

($10.81) ($11.35) -0.7%$243.19 $252.59

($1.90) ($2.00) -6.0%$13.50 $10.77 7.0%

$231.59 $243.81

$81.06 $85.33 35.0%$150.53 $158.48

$60.21 $63.39 40.0%$90.32 $95.09

$32.44 $34.06 2.1%$129.76 $136.25 8.4%$135.94 $142.73 8.8%$117.40 $123.27 7.6%$415.53 $436.31

$1,150.24 $1,242.26 8.0%$684.01 $783.40 $466.23 $458.87

$607.34 $668.07 10.0%$1,073.6 $1,126.9

$1,489.1 $1,563.2

$94.2 $98.9 6.1%($19.6) ($58.4)$123.6 $129.8 8.0%$198.2 $170.3

$218.1 $218.1 $21.6 $22.7 1.4%

$117.4 $123.3 7.6%

J15
siddhu: Assume that the rate of interest income is 6%
J16
siddhu: based on assumption
Page 7: Forecasting Unbalanced Balance Sheets

$555.3 $534.4

$44.8 $44.8 $889.0 $984.1 $933.8 $1,028.9

$1,489.1 $1,563.2

$65.18 $75.48 46.2 46.2

$3.26 $3.43 $1.30 $1.37

20.0 22.03.2 3.4

40% 40%

16.9% 16.1%15.7% 15.6%

5.5% 5.3%5.5% 5.3%5.0% 5.0%3.9% 3.9%5.5% 5.3%

2.10 2.560.82 1.00

5.8 5.811.9 11.9

17.5% 13.4%20.2% 19.3%21.3% 15.5%

18.0 23.5

Page 8: Forecasting Unbalanced Balance Sheets

24.8 32.7

NI Div/Sh ROE$158.48 $1.37 16.15%

158.4782822 1.0733467181 0.1315843901158.4782822 1.144912145 0.1389445327158.4782822 1.2185680107 0.1463838701158.4782822 1.2943549638 0.1539007135158.4782822 1.3723141587 0.1614933545158.4782822 1.452487145 0.1691600556158.4782822 1.534915868 0.1768990516158.4782822 1.6196426678 0.1847085526158.4782822 1.7067102802 0.1925867461158.4782822 1.7961618359 0.2005317991158.4782822 1.8880408613 0.2085418607