Verizon Financial analysis writing part
Mbab4
VerizonFinancials.xlsxIS
| Income Statement | |||
| All numbers in thousands | |||
| Revenue | 12/31/15 | 12/31/16 | 12/31/17 |
| Total Revenue | 131,620,000 | 125,980,000 | 126,034,000 |
| Cost of Revenue | 52,557,000 | 51,424,000 | 51,556,000 |
| Gross Profit | 79,063,000 | 74,556,000 | 74,478,000 |
| Operating Expenses | |||
| Research Development | - | - | - |
| Selling General and Administrative | 29,986,000 | 31,569,000 | 30,110,000 |
| Non Recurring | - | - | - |
| Others | 16,017,000 | 15,928,000 | 16,954,000 |
| Total Operating Expenses | - | - | - |
| Operating Income or Loss | 33,060,000 | 27,059,000 | 27,414,000 |
| Income from Continuing Operations | |||
| Total Other Income/Expenses Net | 186,000 | -1,599,000 | -2,010,000 |
| Earnings Before Interest and Taxes | 33,160,000 | 25,362,000 | 25,327,000 |
| Interest Expense | 4,920,000 | 4,376,000 | 4,733,000 |
| Income Before Tax | 28,240,000 | 20,986,000 | 20,594,000 |
| Income Tax Expense | 9,865,000 | 7,378,000 | -9,956,000 |
| Minority Interest | 1,414,000 | 1,508,000 | 1,591,000 |
| Net Income From Continuing Ops | 17,793,000 | 13,029,000 | 30,024,000 |
| Non-recurring Events | |||
| Discontinued Operations | - | - | - |
| Extraordinary Items | - | - | - |
| Effect Of Accounting Changes | - | - | - |
| Other Items | - | - | - |
| Net Income | |||
| Net Income | 17,879,000 | 13,127,000 | 30,101,000 |
| Preferred Stock And Other Adjustments | - | - | - |
| Net Income Applicable To Common Shares | 17,879,000 | 13,127,000 | 30,101,000 |
BS
| Balance Sheet | |||
| All numbers in thousands | |||
| Period Ending | 12/31/15 | 12/31/16 | 12/31/17 |
| Current Assets | |||
| Cash And Cash Equivalents | 4,470,000 | 2,880,000 | 2,079,000 |
| Short Term Investments | 350,000 | - | - |
| Net Receivables | 13,457,000 | 17,513,000 | 23,493,000 |
| Inventory | 1,252,000 | 1,202,000 | 1,034,000 |
| Other Current Assets | 2,826,000 | 4,800,000 | 3,307,000 |
| Total Current Assets | 22,355,000 | 26,395,000 | 29,913,000 |
| Long Term Investments | 796,000 | 1,110,000 | 1,039,000 |
| Property Plant and Equipment | 93,808,000 | 85,364,000 | 88,568,000 |
| Goodwill | 25,331,000 | 27,205,000 | 29,172,000 |
| Intangible Assets | 94,167,000 | 95,570,000 | 98,664,000 |
| Accumulated Amortization | - | - | - |
| Other Assets | 7,718,000 | 8,536,000 | 9,787,000 |
| Deferred Long Term Asset Charges | - | - | - |
| Total Assets | 244,175,000 | 244,180,000 | 257,143,000 |
| Current Liabilities | |||
| Accounts Payable | 19,362,000 | 19,593,000 | 21,232,000 |
| Short/Current Long Term Debt | 6,489,000 | 2,645,000 | 3,453,000 |
| Other Current Liabilities | 9,201,000 | 8,102,000 | 8,352,000 |
| Total Current Liabilities | 35,052,000 | 30,340,000 | 33,037,000 |
| Long Term Debt | 103,240,000 | 105,433,000 | 113,642,000 |
| Other Liabilities | 42,557,000 | 38,411,000 | 34,545,000 |
| Deferred Long Term Liability Charges | 45,484,000 | 45,964,000 | 31,232,000 |
| Minority Interest | 1,414,000 | 1,508,000 | 1,591,000 |
| Negative Goodwill | - | - | - |
| Total Liabilities | 227,747,000 | 220,148,000 | 212,456,000 |
| Stockholders' Equity | |||
| Misc. Stocks Options Warrants | - | - | - |
| Redeemable Preferred Stock | - | - | - |
| Preferred Stock | - | - | - |
| Common Stock | 424,000 | 424,000 | 424,000 |
| Retained Earnings | 11,246,000 | 15,059,000 | 35,635,000 |
| Treasury Stock | -7,416,000 | -7,263,000 | -7,139,000 |
| Capital Surplus | 11,196,000 | 11,182,000 | 11,101,000 |
| Other Stockholder Equity | 978,000 | 3,122,000 | 3,075,000 |
| Total Stockholder Equity | 16,428,000 | 22,524,000 | 43,096,000 |
| Net Tangible Assets | -103,070,000 | -100,251,000 | -84,740,000 |
CF
| Cash Flow | |||
| All numbers in thousands | |||
| Period Ending | 12/31/15 | 12/31/16 | 12/31/17 |
| Net Income | 17,879,000 | 13,127,000 | 30,101,000 |
| Operating Activities, Cash Flows Provided By or Used In | |||
| Depreciation | 16,017,000 | 15,928,000 | 16,954,000 |
| Adjustments To Net Income | 3,506,000 | 2,007,000 | -17,924,000 |
| Changes In Accounts Receivables | -945,000 | -5,067,000 | -5,436,000 |
| Changes In Liabilities | 2,545,000 | -1,079,000 | -335,000 |
| Changes In Inventories | -99,000 | 61,000 | 168,000 |
| Changes In Other Operating Activities | -372,000 | -2,648,000 | 1,328,000 |
| Total Cash Flow From Operating Activities | 39,027,000 | 22,810,000 | 25,305,000 |
| Investing Activities, Cash Flows Provided By or Used In | |||
| Capital Expenditures | -17,775,000 | -17,059,000 | -17,247,000 |
| Investments | - | - | - |
| Other Cash flows from Investing Activities | -12,268,000 | 6,076,000 | -2,125,000 |
| Total Cash Flows From Investing Activities | -30,043,000 | -10,983,000 | -19,372,000 |
| Financing Activities, Cash Flows Provided By or Used In | |||
| Dividends Paid | -8,538,000 | -9,262,000 | -9,472,000 |
| Sale Purchase of Stock | -5,134,000 | - | - |
| Net Borrowings | -3,017,000 | -1,358,000 | 7,590,000 |
| Other Cash Flows from Financing Activities | 1,577,000 | -2,797,000 | -4,852,000 |
| Total Cash Flows From Financing Activities | -15,112,000 | -13,417,000 | -6,734,000 |
| Effect Of Exchange Rate Changes | - | - | - |
| Change In Cash and Cash Equivalents | -6,128,000 | -1,590,000 | -801,000 |
Ratios
| A. Profitability Ratios: | 2015 | 2016 | 2017 | |
| 1. Return on Assets (net income/total assets) | 7.32% | 5.38% | 11.71% | |
| 2. Return on Sales, (aka profit margin percent) (net income/sales) | 13.58% | 10.42% | 23.88% | |
| 3. Assets-to-Equity (total assets/stockholder’s equity) | 14.8633430728 | 10.8408808382 | 5.9667486542 | |
| 4. Return on Equity (net income/stockholder’s equity) | 108.83% | 58.28% | 69.85% | |
| B. Efficiency Ratios: | ||||
| 1. Asset Turnover (sales/total assets) | 0.5390396232 | 0.5159308707 | 0.4901319499 | |
| 2. A/R Turnover Rate (sales/accounts receivable) | 9.7807832355 | 7.1935133901 | 5.3647469459 | |
| 3. Inventory Turnover Rate (COGS/average inventory) | 41.9784345048 | 41.9103504482 | 46.114490161 | |
| 4. Fixed Asset Turnover (sales/average fixed assets) | 0.5933639888 | 0.5731508968 | 0.5664258508 | |
| C. Leverage Ratios: | ||||
| 1. Debt Ratio (total liabilities/total assets) | 93.27% | 90.16% | 82.62% | |
| 2. Debt-to-Equity Ratio (total liabilities/stockholder’s equity) | 13.8633430728 | 9.7739300302 | 4.9298310748 | |
| 3. Times Interest Earned (earnings before interest and taxes/interest expense) | 6.7398373984 | 5.7957038391 | 5.3511514895 | |
| D. Liquidity Ratios: | ||||
| 1. Current Ratio (current assets/current liabilities) | 0.6377667465 | 0.8699736322 | 0.9054393559 | |
| 2. Working Capital (current assets – current liabilities) | -12,697,000 | -3,945,000 | -3,124,000 | |
| Year | ROE | Operation Management | Asset Management | Leverage Management |
| NI/Equity | NI/Sales | Sales/Assets | Assets/Equity | |
| 2015 | 108.83% | 13.58% | 0.5390396232 | 14.8633430728 |
| 2016 | 58.28% | 10.42% | 0.5159308707 | 10.8408808382 |
| 2017 | 69.85% | 23.88% | 0.4901319499 | 5.9667486542 |
Beta
| VZ | S&P500 | SUMMARY OUTPUT | |||||||||||||
| Date | Adj Close | Return | Adj Close | return | |||||||||||
| 1/1/13 | 33.960934 | 1498.109985 | Regression Statistics | ||||||||||||
| 2/1/13 | 36.657288 | 7.94% | 1514.680054 | 1.11% | Multiple R | 0.3174109632 | |||||||||
| 3/1/13 | 38.72139 | 5.63% | 1569.189941 | 3.60% | R Square | 0.1007497196 | |||||||||
| 4/1/13 | 42.471405 | 9.68% | 1597.569946 | 1.81% | Adjusted R Square | 0.0849733989 | |||||||||
| 5/1/13 | 38.594589 | -9.13% | 1630.73999 | 2.08% | Standard Error | 0.0472690101 | |||||||||
| 6/1/13 | 40.075329 | 3.84% | 1606.280029 | -1.50% | Observations | 59 | |||||||||
| 7/1/13 | 39.39069 | -1.71% | 1685.72998 | 4.95% | |||||||||||
| 8/1/13 | 38.101398 | -3.27% | 1632.969971 | -3.13% | ANOVA | ||||||||||
| 9/1/13 | 37.530434 | -1.50% | 1681.550049 | 2.97% | df | SS | MS | F | Significance F | ||||||
| 10/1/13 | 40.618435 | 8.23% | 1756.540039 | 4.46% | Regression | 1 | 0.0142689211 | 0.0142689211 | 6.3861353633 | 0.014300535 | |||||
| 11/1/13 | 40.354996 | -0.65% | 1805.810059 | 2.80% | Residual | 57 | 0.1273584812 | 0.0022343593 | |||||||
| 12/1/13 | 39.964626 | -0.97% | 1848.359985 | 2.36% | Total | 58 | 0.1416274023 | ||||||||
| 1/1/14 | 39.053753 | -2.28% | 1782.589966 | -3.56% | |||||||||||
| 2/1/14 | 39.116432 | 0.16% | 1859.449951 | 4.31% | Coefficients | Standard Error | t Stat | P-value | Lower 95% | Upper 95% | Lower 95.0% | Upper 95.0% | |||
| 3/1/14 | 39.108208 | -0.02% | 1872.339966 | 0.69% | Intercept | 0.002423913 | 0.0065829717 | 0.3682095378 | 0.7140809377 | -0.0107582605 | 0.0156060864 | -0.0107582605 | 0.0156060864 | ||
| 4/1/14 | 38.417625 | -1.77% | 1883.949951 | 0.62% | X Variable 1 | 0.5777349161 | 0.2286175443 | 2.527080403 | 0.014300535 | 0.1199361802 | 1.035533652 | 0.1199361802 | 1.035533652 | ||
| 5/1/14 | 41.530499 | 8.10% | 1923.569946 | 2.10% | |||||||||||
| 6/1/14 | 40.674278 | -2.06% | 1960.22998 | 1.91% | Beta | 0.5777349161 | |||||||||
| 7/1/14 | 41.912876 | 3.05% | 1930.670044 | -1.51% | |||||||||||
| 8/1/14 | 41.860065 | -0.13% | 2003.369995 | 3.77% | |||||||||||
| 9/1/14 | 42.002899 | 0.34% | 1972.290039 | -1.55% | |||||||||||
| 10/1/14 | 42.221363 | 0.52% | 2018.050049 | 2.32% | |||||||||||
| 11/1/14 | 42.982895 | 1.80% | 2067.560059 | 2.45% | |||||||||||
| 12/1/14 | 39.745796 | -7.53% | 2058.899902 | -0.42% | |||||||||||
| 1/1/15 | 38.836685 | -2.29% | 1994.98999 | -3.10% | |||||||||||
| 2/1/15 | 42.511364 | 9.46% | 2104.5 | 5.49% | |||||||||||
| 3/1/15 | 41.806423 | -1.66% | 2067.889893 | -1.74% | |||||||||||
| 4/1/15 | 43.36245 | 3.72% | 2085.51001 | 0.85% | |||||||||||
| 5/1/15 | 42.982582 | -0.88% | 2107.389893 | 1.05% | |||||||||||
| 6/1/15 | 40.522209 | -5.72% | 2063.110107 | -2.10% | |||||||||||
| 7/1/15 | 40.678707 | 0.39% | 2103.840088 | 1.97% | |||||||||||
| 8/1/15 | 40.471676 | -0.51% | 1972.180054 | -6.26% | |||||||||||
| 9/1/15 | 38.272602 | -5.43% | 1920.030029 | -2.64% | |||||||||||
| 10/1/15 | 41.236954 | 7.75% | 2079.360107 | 8.30% | |||||||||||
| 11/1/15 | 40.498405 | -1.79% | 2080.409912 | 0.05% | |||||||||||
| 12/1/15 | 41.184525 | 1.69% | 2043.939941 | -1.75% | |||||||||||
| 1/1/16 | 44.525978 | 8.11% | 1940.23999 | -5.07% | |||||||||||
| 2/1/16 | 45.759178 | 2.77% | 1932.22998 | -0.41% | |||||||||||
| 3/1/16 | 48.780926 | 6.60% | 2059.73999 | 6.60% | |||||||||||
| 4/1/16 | 45.948597 | -5.81% | 2065.300049 | 0.27% | |||||||||||
| 5/1/16 | 46.397163 | 0.98% | 2096.949951 | 1.53% | |||||||||||
| 6/1/16 | 50.900143 | 9.71% | 2098.860107 | 0.09% | |||||||||||
| 7/1/16 | 50.50819 | -0.77% | 2173.600098 | 3.56% | |||||||||||
| 8/1/16 | 48.182224 | -4.61% | 2170.949951 | -0.12% | |||||||||||
| 9/1/16 | 47.859962 | -0.67% | 2168.27002 | -0.12% | |||||||||||
| 10/1/16 | 44.287502 | -7.46% | 2126.149902 | -1.94% | |||||||||||
| 11/1/16 | 46.468353 | 4.92% | 2198.810059 | 3.42% | |||||||||||
| 12/1/16 | 49.709026 | 6.97% | 2238.830078 | 1.82% | |||||||||||
| 1/1/17 | 45.639553 | -8.19% | 2278.870117 | 1.79% | |||||||||||
| 2/1/17 | 46.710609 | 2.35% | 2363.639893 | 3.72% | |||||||||||
| 3/1/17 | 45.88237 | -1.77% | 2362.719971 | -0.04% | |||||||||||
| 4/1/17 | 43.209427 | -5.83% | 2384.199951 | 0.91% | |||||||||||
| 5/1/17 | 44.419796 | 2.80% | 2411.800049 | 1.16% | |||||||||||
| 6/1/17 | 42.534046 | -4.25% | 2423.409912 | 0.48% | |||||||||||
| 7/1/17 | 46.096012 | 8.37% | 2470.300049 | 1.93% | |||||||||||
| 8/1/17 | 46.285133 | 0.41% | 2471.649902 | 0.05% | |||||||||||
| 9/1/17 | 47.751743 | 3.17% | 2519.360107 | 1.93% | |||||||||||
| 10/1/17 | 46.188641 | -3.27% | 2575.26001 | 2.22% | |||||||||||
| 11/1/17 | 49.691639 | 7.58% | 2584.840088 | 0.37% | |||||||||||
| 12/1/17 | 51.683605 | 4.01% | 2673.610107 | 3.43% |
VZ
1.1060649195259176E-2 3.5987723516956116E-2 1.8085767859252311E-2 2.0762811721046104E-2 -1.4999301636062778E-2 4.9462079815224991E-2 -3.1298019033866864E-2 2.9749523177239112E-2 4.4595752618006079E-2 2.8049471635186451E-2 2.356279155049279E-2 -3.5582905675162646E-2 4.3117029976595278E-2 6.9321656079357474E-3 6.2007889650528281E-3 2.1030280012996005E-2 1.9058331658920569E-2 -1.5079830581919862E-2 3.7655295489735119E-2 -1.5513837223063764E-2 2.3201460786772321E-2 2.4533588760364822E-2 -4.1885878779204244E-3 -3.1040805790470194E-2 5.4892511014553946E-2 -1.739610691375626E-2 8.5208197301247512E-3 1.0491382393316817E-2 -2.1011672375900514E-2 1.9742029696721453E-2 -6.2580818167202845E-2 -2.6442831573227132E-2 8.2983117760394132E-2 5.0486926072412786E-4 -1.7530185176314439E-2 -5.073532197294639E-2 -4.1283604302990717E-3 6.5991114577365062E-2 2.6993984808731941E-3 1.5324602357572603E-2 9.1092112097812539E-4 3.5609801125254359E-2 -1.2192431360480427E-3 -1.2344508443253854E-3 -1.9425679279557517E-2 3.4174522187570444E-2 1.8200762196895148E-2 1.7884358171464498E-2 3.7198160337279074E-2 -3.8919718808450021E-4 9.0912085493182193E-3 1.157625139134133E-2 4.8137750908554544E-3 1.93488261 18030571E-2 5.4643281108557318E-4 1.9302978533243698E-2 2.218813533034969E-2 3.7200430103365711E-3 3.4342557364422932E-2 7.9395755134414214E-2 5.630809349562349E-2 9.6846084296044133E-2 -9.1280615746053062E-2 3.8366518166575325E-2 -1.7083802356307687E-2 -3.2730881332619366E-2 -1.4985381901210126E-2 8.2279917146708126E-2 -6.4857003968763483E-3 -9.6733995463659239E-3 -2.2791981088475688E-2 1.6049417837000757E-3 -2.1024412451542407E-4 -1.7658262429206539E-2 8.1027236847670769E-2 -2.0616679804401072E-2 3.0451628422267119E-2 -1.2600185203229808E-3 3.4121781702918241E-3 5.2011648053149617E-3 1.8036651256379432E-2 -7.531133023962211E-2 -2.2873136067019462E-2 9.4618760586800743E-2 -1.6582413116643324E-2 3.7219807109543979E-2 -8.7602983687499192E-3 -5.7241163408936258E-2 3.8620303251484245E-3 -5.0894193859210013E-3 -5.4336123861043029E-2 7.7453631190270267E-2 -1.790988248065073E-2 1.6941901786008629E-2 8.1133702525402418E-2 2.7696191198764764E-2 6.6035889018810634E-2 -5.8062222927051432E-2 9.7623437773302069E-3 9.7052916791485755E-2 -7.7004302325830443E-3 -4.6051264161317218E-2 -6.688400269775685E-3 -7.4644020820576529E-2 4.924303475052616E-2 6.9739355728833274E-2 -8.1865876832911577E-2 2.3467714506318682E-2 -1.7731282415949567E-2 -5.8256428340558775E-2 2.8011688282744363E-2 -4.2452918964328457E-2 8.3743878962278862E-2 4.1027627292355984E-3 3.1686416456878197E-2 -3.2733925544874864E-2 7.584111426876583E-2 4.0086542526801994E-2
WACC
| U.S Treasury | ||||||||
| Name | Last Price | |||||||
| 13 WEEK TREASURY BILL | 1.84 | |||||||
| Treasury Yield 5 Years | 2.576 | |||||||
| 10-Yr Bond | 2.815 | |||||||
| Treasury Yield 30 Years | 3.00 | |||||||
| Source: https://finance.yahoo.com/bonds | ||||||||
| Risk free rate | 3.00% | |||||||
| Market return | 12.27% | |||||||
| Beta | 0.5777349161 | |||||||
| Cost of equity | 8.36% | |||||||
| Cost of Debt: | ||||||||
| Credit rating | BBB+ | source:http://fortune.com/2017/01/27/verizon-investors-charter/ | ||||||
| Cost of Debt:(Rd) | 7.50% | |||||||
| Tax rate | 39.48% | |||||||
| After tax cost of debt | 4.54% | 2015 | 2016 | 2017 | ||||
| Income Before Tax | 28,240,000 | 20,986,000 | 20,594,000 | |||||
| Outstanding shares | 4089 | million | Income Tax Expense | 9,865,000 | 7,378,000 | 9,956,000 | ||
| stock price | 51.683605 | Tax rate | 0.3493271955 | 0.3515677118 | 0.4834417792 | |||
| Market value of equity | 211,334.26 | million | ||||||
| Book value of debt | 197,770 | million | ||||||
| total values | 409,104.26 | |||||||
| Weight of debt | 48.34% | |||||||
| Weight of Equity | 51.66% | |||||||
| After tax cost of debt | 4.54% | |||||||
| cost of equity | 8.36% | |||||||
| WACC | 6.511% |
Chapter
| Corporate Valuation and Financial Planning | |||||||||||||||
| 12-2 Financial Planning at Verizon, Inc. | |||||||||||||||
| Figure 12-1 | |||||||||||||||
| Verizon’s Most Recent Financial Statements (Millions, Except for Per Share Data) | |||||||||||||||
| INCOME STATEMENTS | BALANCE SHEETS | ||||||||||||||
| 2016 | 2017 | Assets | 2016 | 2017 | |||||||||||
| Net sales | $ 125,980 | $ 126,034 | Cash | $ 2,880 | $ 2,079 | ||||||||||
| COGS (excl. depr.) | 51,424 | 51,556 | ST Investments | - | - | ||||||||||
| Depreciation | 15,928 | 16,954 | Accounts receivable | 17,513 | 23,493 | ||||||||||
| Other operating expenses | 33,266 | 32,197 | Inventories | 1,202 | 1,034 | ||||||||||
| EBIT | $ 25,362 | $ 25,327 | Total CA | $ 26,395 | $ 29,913 | ||||||||||
| Interest expense | 4,920 | 4,376 | Net PP&E | 217,785 | 227,230 | ||||||||||
| Pre-tax earnings | $ 20,442 | $ 20,951 | Total assets | $ 244,180 | $ 257,143 | ||||||||||
| Taxes (40%) | 2,563 | 7,824 | |||||||||||||
| NI before pref. div. | $ 17,879 | $ 13,127 | Liabilities and equity | ||||||||||||
| Preferred div. | - | - | Accounts payable | $ 19,593 | $ 21,232 | ||||||||||
| Net income | $ 17,879 | $ 13,127 | Accruals | 8,102 | 8,352 | ||||||||||
| Notes payable | 2,645 | 3,453 | |||||||||||||
| Other Data | Total CL | $ 30,340 | $ 33,037 | ||||||||||||
| Common dividends | $9,262 | $9,472 | Long-term bonds | 189,808 | 179,419 | ||||||||||
| Addition to RE | $8,617 | $3,655 | Total liabilities | $ 220,148 | $ 212,456 | ||||||||||
| Tax rate | 35% | 48% | Preferred stock | - | - | ||||||||||
| Shares of common stock | 4,086 | 4,089 | Common stock | 424 | 424 | ||||||||||
| Earnings per share | $4.38 | $3.21 | Retained earnings | 15,059 | 35,635 | ||||||||||
| Dividends per share | $2.27 | $2.32 | Total common equity | $ 24,032 | $ 44,687 | ||||||||||
| Price per share | $45.64 | $51.68 | Total liabs. & equity | $ 244,180 | $ 257,143 | ||||||||||
| Note: These inputs are linked throughout the model. If you want to change an input, do it here and not other places in the model. | |||||||||||||||
| Figure 12-2 | |||||||||||||||
| Verizon's Forecast: Inputs for the Selected Scenario | |||||||||||||||
| Status Quo | Industry | Verizon | Verizon | ||||||||||||
| Inputs | Actual | Actual | Forecast | ||||||||||||
| 1. Operating Ratios | 2017 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | |||||||
| Sales growth rate | 5% | 15% | 0% | 2% | 3% | 4% | 4% | 4% | |||||||
| COGS (excl. depr.) / Sales | 76% | 41% | 41% | 41% | 41% | 41% | 41% | 41% | |||||||
| Depreciation / Net PP&E | 9% | 7% | 7% | 7% | 7% | 7% | 7% | 7% | |||||||
| Other op. exp. / Sales | 10% | 26% | 26% | 26% | 26% | 26% | 26% | 26% | |||||||
| Cash / Sales | 1% | 2% | 2% | 2% | 2% | 2% | 2% | 2% | Actual Historical Financing | ||||||
| Acc. rec. / Sales | 8% | 14% | 19% | 16% | 16% | 16% | 16% | 16% | 2016 | 2017 | |||||
| Inventory / Sales | 15% | 1% | 1% | 1% | 1% | 1% | 1% | 1% | Long-term debt | $189,808 | $179,419 | ||||
| Net PP&E / Sales | 33% | 173% | 180% | 177% | 177% | 177% | 177% | 177% | Short-term debt | $2,645 | $3,453 | ||||
| Acc. pay. / Sales | 4% | 16% | 17% | 16% | 16% | 16% | 16% | 16% | Preferred stock | $0 | $0 | ||||
| Accruals / Sales | 7% | 6% | 7% | 7% | 7% | 7% | 7% | 7% | Market value of equity = (Price x # shares) | $186,483 | $211,334 | ||||
| Tax rate | 40% | 13% | 37% | 25% | 25% | 25% | 25% | 25% | Total | $378,936 | $394,206 | ||||
| 2. Capital Structure | Actual Market Weights | Target Market Weights | |||||||||||||
| % Long-term debt | 22% | 50% | 46% | 48% | 48% | 48% | 48% | 48% | See the box to the right for calculations of the actual capital structures, based on market values, for the past two years. | Percent long-term debt | 50% | 46% | |||
| % Short-term debt | 3% | 1% | 1% | 1% | 1% | 1% | 1% | 1% | Percent short-term debt | 1% | 1% | ||||
| % Preferred stock | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | Percent preferred stock | 0% | 0% | ||||
| % Common stock | 75% | 49% | 54% | 51% | 51% | 51% | 51% | 51% | Percent market value of equity | 49% | 54% | ||||
| 3. Costs of Capital | Forecast | Total | 100% | 100% | |||||||||||
| Rate on LT debt | 7.5% | 8% | 8% | 8% | 8% | ||||||||||
| Rate on ST debt | 10.0% | 10% | 10% | 10% | 10% | ||||||||||
| Rate on preferred stock (ignoring flotation costs) | 0.0% | 0% | 0% | 0% | 0% | ||||||||||
| Cost of equity | 8.36% | 8% | 8% | 8% | 8% | ||||||||||
| 4. Target Dividend Policy | Actual | ||||||||||||||
| Growth rate of dividends | 11% | 2.2% | 7% | 7% | 7% | 7% | 7% | ||||||||
| Note: Do not change inputs here because these inputs are linked to the ones in Figure 12-2. If you want to change inputs, do so in Figure 12-2. | |||||||||||||||
| Figure 12-3 | |||||||||||||||
| Verizon's Forecast of Operations for the Selected Scenario (Millions of Dollars, Except for Per Share Data) | |||||||||||||||
| Status Quo | Industry | Verizon | Verizon | ||||||||||||
| Panel A: Inputs | Actual | Actual | Forecast | ||||||||||||
| A1. Operating Ratios | 2017 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | |||||||
| Sales growth rate | 5% | 15% | 0% | 2% | 3% | 4% | 4% | 4% | |||||||
| COGS (excl. depr.) / Sales | 76% | 41% | 41% | 41% | 41% | 41% | 41% | 41% | |||||||
| Depreciation / Net PP&E | 9% | 7% | 7% | 7% | 7% | 7% | 7% | 7% | |||||||
| Other op. exp. / Sales | 10% | 26% | 26% | 26% | 26% | 26% | 26% | 26% | |||||||
| Cash / Sales | 1% | 2% | 2% | 2% | 2% | 2% | 2% | 2% | |||||||
| Acc. rec. / Sales | 8% | 14% | 19% | 16% | 16% | 16% | 16% | 16% | |||||||
| Inventory / Sales | 15% | 1% | 1% | 1% | 1% | 1% | 1% | 1% | |||||||
| Net PP&E / Sales | 33% | 173% | 180% | 177% | 177% | 177% | 177% | 177% | |||||||
| Acc. pay. / Sales | 4% | 16% | 17% | 16% | 16% | 16% | 16% | 16% | |||||||
| Accruals / Sales | 7% | 6% | 7% | 7% | 7% | 7% | 7% | 7% | |||||||
| Tax rate | 40% | 13% | 37% | 25% | 25% | 25% | 25% | 25% | |||||||
| Panel B: Results | Actual | Forecast | |||||||||||||
| B1. Sales Revenues | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | |||||||||
| Net sales | $126,034 | $128,254 | $131,796 | $136,754 | $142,581 | $148,658 | |||||||||
| B2. Operating Assets and Operating Liabilities | |||||||||||||||
| Cash | $2,079 | $2,524 | $2,594 | $2,691 | $2,806 | $2,925 | |||||||||
| Accounts receivable | $23,493 | $20,868 | $21,444 | $22,251 | $23,199 | $24,188 | |||||||||
| Inventories | $1,034 | $1,138 | $1,169 | $1,213 | $1,265 | $1,319 | |||||||||
| Net PP&E | $227,230 | $226,475 | $232,729 | $241,483 | $251,774 | $262,503 | |||||||||
| Accounts payable | $21,232 | $20,776 | $21,350 | $22,153 | $23,097 | $24,082 | |||||||||
| Accruals | $8,352 | $8,374 | $8,605 | $8,929 | $9,309 | $9,706 | |||||||||
| B3. Operating Income | |||||||||||||||
| COGS (excl. depr.) | $51,556 | $52,408 | $53,856 | $55,881 | $58,263 | $60,746 | |||||||||
| Depreciation | $16,954 | $16,731 | $17,193 | $17,839 | $18,600 | $19,392 | |||||||||
| Other operating expenses | $32,197 | $33,315 | $34,235 | $35,523 | $37,037 | $38,615 | |||||||||
| EBIT | $25,327 | $25,800 | $26,512 | $27,510 | $28,682 | $29,904 | |||||||||
| Net operating profit after taxes | $15,869 | $19,365 | $19,900 | $20,649 | $21,528 | $22,446 | |||||||||
| B4. Free Cash Flows | |||||||||||||||
| Net operating working capital | −$2,978 | −$4,620 | −$4,748 | −$4,926 | −$5,136 | −$5,355 | |||||||||
| Total operating capital | $224,252 | $221,854 | $227,981 | $236,557 | $246,637 | $257,148 | |||||||||
| FCF = NOPAT – Δ op capital | $3,302 | $21,763 | $13,773 | $12,073 | $11,447 | $11,935 | |||||||||
| B5. Estimated Intrinsic Value | |||||||||||||||
| Target WACC | 7.0% | 7.0% | 7.0% | 7.0% | 7.0% | ||||||||||
| Return on invested capital | 7.1% | 8.7% | 8.7% | 8.7% | 8.7% | 8.7% | |||||||||
| Growth in FCF | -37% | -12.3% | -5.2% | 4.3% | |||||||||||
| Horizon Value: | Value of operations | $377,394 | |||||||||||||
| + ST investments | $0 | ||||||||||||||
| = | $446,953 | Estimated total intrinsic value | $377,394 | ||||||||||||
| − All debt | $182,872 | ||||||||||||||
| Value of Operations: | − Preferred stock | $0 | |||||||||||||
| Present value of HV | $317,991 | Estimated intrinsic value of equity | $194,522 | ||||||||||||
| + Present value of FCF | $59,403 | ÷ Number of shares | $4,089 | ||||||||||||
| Value of operations = | $377,394 | Estimated intrinsic stock price = | $47.57 | ||||||||||||
Sales
| Year | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 |
| Sales | 115,846 | 120,550 | 127,079 | 131,620 | 125,980 | 126,034 |
| % increase | ERROR:#VALUE! | 4.06% | 5.42% | 3.57% | -4.29% | 0.04% |
| Average | 1.76% |
