B C D E F G H I

1 3/13/2005
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Note: You may get a warning from Excel that cannot calculate a formula, because the model in the AUTOMATIC
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FEEDBACK worksheet intentionally has circular references. If you get this warning, go to the menu bar and click on
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Tools>Options. Then click the tab for Calculation and check the box for Iterations. This will allow Excel to calculate the
formulas
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8 Tool Kit for Advanced Issues in Financial Forecasting
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12 INCOME STATEMENT
13 (in millions of dollars) 2005 2006
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15 Sales $2,850.0 $3,000.0
16 Costs except depreciation $2,497.0 $2,616.2
17 Depreciation $90.0 $100.0
18 Total operating costs $2,587.0 $2,716.2
19 EBIT $263.0 $283.8
20 Less Interest $60.0 $88.0
21 Earnings before taxes (EBT) $203.0 $195.8
22 Taxes (40%) $81.2 $78.3
23 NI before preferred dividends $121.8 $117.5
24 Preferred dividends $4.0 $4.0
25 NI available to common $117.8 $113.5
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27 Dividends to common $53.0 $57.5
28 Add. to retained earnings (DRE) $64.8 $56.0
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30 Shares of common equity 50 50
31 Dividends per share $1.06 $1.15
32 Price per share $26.00 $23.00
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34 BALANCE SHEET
35 (in millions of dollars)
36 2005 2006
37 Assets
38 Cash $15.0 $10.0
39 ST Investments $65.0 $0.0
40 Accounts receivable $315.0 $375.0
41 Inventories $415.0 $615.0
42 Total current assets $810.0 $1,000.0
43 Net plant and equipment $870.0 $1,000.0
44 Total assets $1,680.0 $2,000.0
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46 2005 2006
47 Liabilities and equity
48 Accounts payable $30.0 $60.0
49 Accruals $130.0 $140.0
50 Notes payable $60.0 $110.0
51 Total current liabilities $220.0 $310.0
52 Long-term bonds $580.0 $754.0
53 Total liabilities $800.0 $1,064.0
54 Preferred stock $40.0 $40.0
55 Common stock $130.0 $130.0
56 Retained earnings $710.0 $766.0
57 Total common equity $840.0 $896.0
58 Total liabilities and equity $1,680.0 $2,000.0
 B C D E F G H I
59 worse
60 Pro Forma Ratios Actual Historical Industry Forecast
61 2005 2006 Average Composite 2007
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63 Costs / Sales 87.61% 87.21% 87.41% 87.1% 87.20%
64 Depreciation / Net plant & equip. 10.34% 10.00% 10.17% 10.2% 10.00%
65 Cash / Sales 0.53% 0.33% 0.43% 1.0% 0.33%
66 Accounts Rec. / Sales 11.05% 12.50% 11.78% 10.0% 12.50%
67 Inventory / Sales 14.56% 20.50% 17.53% 11.1% 20.50%
68 Net plant & equip. / sales 30.53% 33.33% 31.93% 33.3% 33.33%
69 Accounts Pay. / Sales 1.05% 2.00% 1.53% 1.0% 2.00%
70 Accruals / Sales 4.56% 4.67% 4.61% 2.0% 4.67%
71 Long-term bonds/operating assets 35.91% 37.70% 36.81% 30.9% 37.70%
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73 Other Inputs
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75 Sales Growth Rate 10%
76 Tax rate 40%
77 Dividend growth rate 8%
78 Interest rate on notes payable and short-term investments 8.5%
79 Interest rate on long-term bonds 10.5%
80 Coupon rate on preferred stock 10%
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82 Funds raised as notes payable 25%
83 Funds raised as long-term debt 25%
84 Funds raised as preferred stock 0%
85 Funds raised as new common stock 50%
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89 Note: we have used the ROUND function to make
90 the calculations consistent with the textbook.
Actual and Projected Income Statements (Millions of Dollars)
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92 First Pass
93 Actual Forecast
94 2006 Forecast basis 2007 2008 2009
95 (1) (2) (3)
96 Sales $ 3,000.0 sales 2016 x 110% $ 3,300.0 $ 3,630.0
97 Costs except depreciation 2,616.2 sales 2017 x 87.2 % 2,877.6
98 Depreciation 100.0 t plan 2017 x 110% 110.0
99 Total operating costs $ 2,716.2 $ 2,987.6
100 EBIT $ 283.8 $ 312.4
101 Less Interest 88.0 Carry on from previous year 88.0
102 Earnings before taxes (EBT) $ 195.8 $ 224.4
103 Taxes (40%) 78.3 89.76
104 NI before preferred dividends $ 117.5 $ 134.6
105 Preferred dividends 4.0 Carry on from previous year 4.0
106 NI available to common $ 113.5 $ 130.6
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108 Shares of common equity 50.0 50.0
109 Dividends per share $ 1.15 2016DPS x 108% $ 1.24
110 Dividends to common $ 57.5 2017 DPS x #shares $ 62.1
111 Add. to retained earnings $ 56.0 $ 68.5
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Actual and First Pass Projected Balance Sheets (Millions of Dollars)
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115 Look to the right for the Third Pass
116 First Pass
117 Actual Forecast
118 2006 Forecast basis 2007
119 (1) (2) (3)
120 Assets
121 Cash $ 10.0 sales 2017 x 0.33% $ 10.9
122 ST investments 0.0 Carry on from the previous year 0.0
123 Accounts receivable 375.0 Sales 2017 x 12.5% 412.50
124 Inventories 615.0 Sales 2017 x 20.5% 676.50
125 Total current assets $ 1,000.0 $ 1,100
126 Net plant and equipment 1,000.0 sales 2017 x 33.33% 1,100
127 Total assets $ 2,000.0 $ 2,200
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129 Liabilities and equity
130 Accounts payable $ 60.0 sales 2017 x 2% $ 66.0
131 Accruals 140.0 sales 2017 x 4.67% 154.1
132 Notes payable 110.0 Carry on from the previous year 110.0
133 Total current liabilities $ 310.0 $ 330.1
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134 Long-term bonds 754.0 Carry on from the previous year 754.0
135 Total liabilities $ 1,064.0 $ 1,084.1
136 Preferred stock 40.0 Carry on from the previous year 40.0
137 Common stock 130.0 Carry on from the previous year 130.0
138 Retained earnings 766.0 2016 RE +68.1$ 834.52
139 Total common equity $ 896.0 $ 1,004.5
140 Total liabilities and equity $ 2,000.0 $ 2,088.6
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142 Required operating assets Cash + ST investment + A/R + inventory
$ 2,199.8
143 Specified sources of financing $ 2,088.6
144 Additional funds needed (AFN) $ 111.2
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146 one way sensitivti analysis
147 step 5%
HOW THE AFN WILL BE RAISED:
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149 two way sensitivity analysis
150 % of AFN Capital raised $ 111.2
Notes payable
151 25.00% $ 27.8 10%
Long-term debt
152 25.00% $ 27.8 15%
Preferred stock
153 0.00% $ - 20%
Common stock
154 50.00% $ 55.6 25%
155Total 100.00% $ 111.2 30%
156 35%
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Note: if the AFN is negative, then the firm has more than it needs to finance the assets. It could reduce its 40%
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financing by paying off debt, buying back stock, or paying a larger dividend. Instead, we assume the firm Simultation
will use any extra funds to purchase additional short-term investments.
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New shares of stock
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162 New equity issued = $ 55.6
163 Stock price = $23.00
164 # new shares issued = 2.420
165 scenario analysi
166 KEY RATIOS
167 2006 Industry Results under each scenario
168 Actuals Averages 1st (history) 2nd 3rd
169 Current ratio 3.2 4.2x
170 Inventory turnover 4.9 9.0x
171 Days collection (DSO) 36.0x
172 Assets turnover 1.5 1.8x
173 Debt ratio 53.2% 40.00%
174 Assets/equity 2.2
175 Times interest earned 3.225
176 Operating cost/sales 0.9054
177 Profit margin 0.0946 5.00%
178 ROA 9%
179 ROE 15.00%
180 EPS
181 Net op profit AT (NOPAT)
182 Net op WC (NOWC)
183 Total operating capital
184 Free cash flow (FCF)
185 Additional funds needed (AFN)