Corporate Valuation and Planning, Conversion cycle and budget
samy
Globalfinance.docx
1) Improving the cash conversion cycle
Choose a company from the Dow Jones 30 (https://money.cnn.com/data/dow30/). Use the most recent balance sheet and income statement from Hoover’s database to calculate the Operating Cycle and Cash (Conversion) Cycle. Would your company improve its Cash Conversion Cycle by reducing or increasing it? Explain your answer? List at least two ways your company could achieve this improvement. Explain the possible risks your company may face if it follows your suggestion?
2) Calculating the cash budget
Here are some important figures from the budget of Baltimore Baking for the second quarter of 2017:
|
|
April |
May |
June |
|||
|
Credit sales |
$ 225,000 |
|
$ 275,000 |
|
$ 300,000 |
|
|
Credit purchases |
60,000 |
|
60,500 |
|
50,250 |
|
|
Cash disbursements |
|
|
|
|
|
|
|
Wages, taxes, and expenses |
42,750 |
|
55,000 |
|
51,250 |
|
|
Interest |
8,300 |
|
8,300 |
|
8,300 |
|
|
Equipment purchases |
79,000 |
|
81,000 |
|
0 |
|
In Baltimore Baking’s experience, 4% of its credit sales will never be collected, 46% of its credit sales are paid in the month of the sale, and another 50% of its credit sales are paid in the month after the sale. Credit purchases will be paid in the month following the purchase.
In March 2017, credit sales were $230,000 and credit purchases were $38,500. Using this information, complete a cash budget (Round answers to the nearest whole dollar):
Note: The beginning cash balance for April should be $625,000.
3) Supernormal Growth Model
Global Finance
4) Corporation Valuation
Use the following data to calculate MicroDrive’s Horizon Value, Value of Operations, and Estimated Stock Price. Show all calculations on a separate sheet of paper.
|
Figure 12-1 |
|
|
|
|
|
|
|
MicroDrive’s Most Recent Financial Statements (Millions, Except for Per Share Data) |
|
|||||
|
INCOME STATEMENTS |
|
|
BALANCE SHEETS |
|
|
|
|
|
2012 |
2013 |
Assets |
|
2012 |
2013 |
|
Net sales |
$ 4,760 |
$ 5,000 |
Cash |
|
$ 60 |
$ 50 |
|
COGS (excl. depr.) |
3,560 |
3,800 |
ST Investments |
40 |
- |
|
|
Depreciation |
170 |
200 |
Accounts receivable |
380 |
500 |
|
|
Other operating expenses |
480 |
500 |
Inventories |
820 |
1,000 |
|
|
EBIT |
$ 550 |
$ 500 |
Total CA |
|
$ 1,300 |
$ 1,550 |
|
Interest expense |
100 |
120 |
Net PP&E |
|
1,700 |
2,000 |
|
Pre-tax earnings |
$ 450 |
$ 380 |
Total assets |
$ 3,000 |
$ 3,550 |
|
|
Taxes (40%) |
180 |
152 |
|
|
|
|
|
NI before pref. div. |
$ 270 |
$ 228 |
Liabilities and equity |
|
|
|
|
Preferred div. |
8 |
8 |
Accounts payable |
$ 190 |
$ 200 |
|
|
Net income |
$ 262 |
$ 220 |
Accruals |
|
280 |
300 |
|
|
|
|
Notes payable |
130 |
280 |
|
|
Other Data |
|
|
Total CL |
|
$ 600 |
$ 780 |
|
Common dividends |
$48 |
$50 |
Long-term bonds |
1,000 |
1,200 |
|
|
Addition to RE |
$214 |
$170 |
Total liabilities |
$ 1,600 |
$ 1,980 |
|
|
Tax rate |
40% |
40% |
Preferred stock |
100 |
100 |
|
|
Shares of common stock |
50 |
50 |
Common stock |
500 |
500 |
|
|
Earnings per share |
$5.24 |
$4.40 |
Retained earnings |
800 |
970 |
|
|
Dividends per share |
$0.96 |
$1.00 |
Total common equity |
$ 1,300 |
$ 1,470 |
|
|
Price per share |
$40.00 |
$27.00 |
Total liabs. & equity |
$ 3,000 |
$ 3,550 |
|
|
|
|
|
|
|
|
|
Figure 12-3
MicroDrive's Forecast of Operations for the Selected Scenario (Millions of Dollars, Except for Per Share Data)
Status QuoIndustry
Panel A: InputsActual
A1. Operating Ratios20132012201320142015201620172018
Sales growth rate5%15%5%10%8%7%5%5%
COGS (excl. depr.) / Sales76%75%76%76%76%76%76%76%
Depreciation / Net PP&E9%10%10%10%10%10%10%10%
Other op. exp. / Sales10%10%10%10%10%10%10%10%
Cash / Sales1%1%1%1%1%1%1%1%
Acc. rec. / Sales8%8%10%10%10%10%10%10%
Inventory / Sales15%17%20%20%20%20%20%20%
Net PP&E / Sales33%36%40%40%40%40%40%40%
Acc. pay. / Sales4%4%4%4%4%4%4%4%
Accruals / Sales7%6%6%6%6%6%6%6%
Tax rate40%40%40%40%40%40%40%40%
Panel B: ResultsActual
B1. Sales Revenues201320142015201620172018
Net sales$5,000$5,500$5,940$6,356$6,674$7,007
B2. Operating Assets and Operating Liabilities
Cash$50$55$59$64$67$70
Accounts receivable$500$550$594$636$667$701
Inventories$1,000$1,100$1,188$1,271$1,335$1,401
Net PP&E$2,000$2,200$2,376$2,542$2,669$2,803
Accounts payable$200$220$238$254$267$280
Accruals$300$330$356$381$400$420
B3. Operating Income
COGS (excl. depr.)$3,800$4,180$4,514$4,830$5,072$5,326
Depreciation$200$220$238$254$267$280
Other operating expenses$500$550$594$636$667$701
EBIT$500$550$594$636$667$701
Net operating profit after taxes$300$330$356$381$400$420
B4. Free Cash Flows
Net operating working capital$1,050$1,155$1,247$1,335$1,401$1,472
Total operating capital$3,050$3,355$3,623$3,877$4,071$4,274
FCF = NOPAT – Δ op capital−$260$25$88$128$207$217
B5. Estimated Intrinsic Value
Target WACC11.0%11.0%11.0%11.0%11.0%
Return on invested capital9.8%9.8%9.8%9.8%9.8%9.8%
Growth in FCF252%45.1%61.7%5.0%
Horizon Value:Value of operations
+ ST investments
=Estimated total intrinsic value
− All debt
Value of Operations:− Preferred stock
Present value of HVEstimated intrinsic value of equity
+ Present value of FCF÷ Number of shares
Value of operations =Estimated intrinsic stock price =
Forecast
MicroDriveMicroDrive
ActualForecast
۶܄ૡൌ�۴۱۴ૡሺାۺሻሺ܅ۯ۱۱�ି�ۺሻ
