Ubisoft Forecasting

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ACTG 495

Case 4 - Forecasting

The following case continues with the financial statement analysis of Ubisoft Entertainment SA

(“Ubisoft” or “the Group”). This case involves a forecast of the income statement, balance sheet

and statement of cash flows over a 5 year period (fiscal 2021 - 2025). Companies typically

complete several forecast cycles each year for a variety of purposes including establishing

performance goals, budgeting, guiding financial policy (fundraising or payout policy) and

valuation. The projected financial statements should be in the same format as the historical

financials published by the Group (same format as the historical financial statements in Case 2).

Requirements

Part I – Income Statement

A. Based upon your work with the historical financial statement analysis, select and forecast

ratios for each line item of the income statement for the next 5 years (2021 - 2025). When

selecting the ratios make sure you identify an appropriate ‘driver’ for each item. For the

income statement, sales is a common driver for many of the line items. For example, Cost of

Sales, Marketing and Administrative costs are typically related to sales. Other items like

Income Tax and Interest Expense may not be related to sales and consequently another driver

should be considered. Please explain the rationale for selecting the ratio types and specific

values used in the forecast. Much of this should flow from your review of the Group’s strategy

and historical financial statement analysis from the prior case.

B. Once the ratio forecast is complete for each year, create the forecast income statement in

Euro’s for 2021 - 2025. Please note that several guiding assumptions are provided at the end

of this case to include sales growth rates. Also note that you may need to revisit some of the

items after working through the other financial statements.

Part II – Balance Sheet

A. Select and forecast ratios for each line item of the balance sheet for the next 5 years (2021 -

2025). Again, when selecting the ratios make sure you identify an appropriate ‘driver’ for

each item. For the balance sheet, turnover ratios are commonly used to forecast operating

items, especially working capital accounts. Please explain the rationale for selecting the ratio

types and specific values used in the forecast. Initially assume no changes to debt (short

term and long term financial borrowings), equity (share capital), goodwill, cash & equivalents,

and financial assets. The balances for these accounts during the forecast period should initially

equal the 2020 amounts. Note these are generally non-operating accounts. We will come

back to address these accounts once we have set expectations for how the business

operations will perform.

B. Once the ratio forecast is complete, create the forecast balance sheet in Euro’s for 2021 -

2025.

Part III – Financial Management Decisions

At this point your forecast for the balance sheet may not balance - do not worry as this is normal.

We now need to make financial policy decisions to balance based on how you have forecast the

business to perform over the next 5 years.

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▪ Are projected assets more or less than projected liabilities and equity? What is the difference

each period?

▪ What financial policy actions could the company take to balance? Financial policy actions

include items such as: Issuing or retiring securities (debt or equity), returning capital to

shareholders via share repurchase or dividends, increasing or decreasing financial assets to

include cash & equivalents.

▪ Please make a recommendation(s) on how to balance and reflect that in your forecast.

Update the balance sheet with your recommendations so that it now balances (note

that it is best to balance one year at a time starting with the first year of the forecast

period).

Part IV – Statement of Cash Flows

Based upon your projected income statement and balance sheet, create a statement of cash flows

for each year from 2021 - 2025.

Part V – Trend Analysis

Prepare the following ratios from 2021 - 2025:

▪ Sales growth rate

▪ Profit Margin

▪ Asset Turnover

▪ Return on Assets

▪ Net Operating Cycle

▪ Total Debt to Equity

What trends are there from the historical period (2016 - 2020) through the forecast period (2021

- 2025)? Is the forecast trend consistent with your ‘story’? Your story is the business reasons

that justify the trends in your ratios.

Part VI – Opportunities and Risks

Your forecast should reflect the ‘expected case’ meaning there should be an equal likelihood that

actual results could be better or worse than the projections. Please discuss 3 – 5 key risks or

opportunities facing the company and how could they impact your forecast assumptions.

Forecast Assumptions:

▪ No new acquisitions of other companies, divestitures or material impairment of assets.

▪ No foreign exchange gains or losses or items related to Other Comprehensive Income.

Many other assumptions about the business or simplifying assumptions will need to be made.

Please be sure to mention the material ones in your report.