FINANCE homework. valuation of a firm that public traded

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Historic Income Statements

Sarajevo Fruit & Vegetable
Historic Income Statement in $$$
For Years Ended 31-12-2005 and 2006
BGN Common size
2005 2006 Growth LTM 30-Jun-99 2005 2006
adj
Sales $ 1,760,000 $ 2,150,000 0.0% 18,268,753 100.0% 100.0%
COGS 1,130,000 1,410,000 0.0% 11,541,603 64.2% 65.6%
Gross profit 630,000 740,000 0.0% 6,727,150 35.8% 34.4%
Salaries and social security 250,000 300,000 3,806,393 14.2% 14.0%
Depreciation 125,233 102,567 461,605 7.1% 4.8%
Other operating expenses 165,000 225,000 937,093 9.4% 10.5%
Operating income (EBIT) 89,767 112,433 0.0% 1,522,059 5.1% 5.2%
Interest expense 71,055 59,919 43,620 4.0% 2.8%
Earnings before taxes (EBT) 18,712 52,515 0.0% - 1.1% 2.4%
Income tax 6,549 18,380 0.0% - 0 0.4% 0.9%
Net income (loss) $ 12,163 $ 34,135 0.0% - 0.7% 1.6%
&L&"Times New Roman,Bold"&10For the purposes of this appraisal, we have not audited these data. We therefore express no opinion or any other form of assurance on them.

Historic Balance sheet(s)

Sarajevo Fruit & Vegetable
Historic Balance Sheet in $$$
As of 31 December 2005 & 2006
Common Size
ASSETS 12/31/05 12/31/06 12/31/05 12/31/06
Current assets
Cash $ 65,000 $ 25,000 5.6% 1.9%
Accounts receivable 380,000 537,500 33.0% 41.7%
Inventory, total 227,000 345,000 19.7% 26.8%
Prepaid expenses 27,000 32,000 2.3% 2.5%
Total current assets 699,000 939,500 60.7% 72.8%
Fixed assets
Building 238,000 238,000 20.7% 18.5%
Machinery and equipment 340,000 340,000 29.5% 26.4%
Less: accumulated depreciation (125,233) (227,800) -10.9% -17.7%
Net fixed assets 452,767 350,200 39.3% 27.2%
Total assets $ 1,151,767 $ 1,289,700 100.0% 100.0%
LIABILITIES 12/31/05 12/31/06 12/31/05 12/31/06
Current liabilities
Accounts payable $ 364,928 $ 542,395 31.7% 42.1%
Taxes payable 28,000 41,000 2.4% 3.2%
Other current liabilities 33,604 15,000 2.9% 1.2%
Total current liabilities 426,532 598,395 37.0% 46.4%
Total long-term liabilities 363,072 295,008 31.5% 22.9%
Stockholder's equity
Common stock 350,000 350,000 30.4% 27.1%
Retained earnings 12,163 46,297 1.1% 3.6%
Total stockholder's equity 362,163 396,297 31.4% 30.7%
Total liabilities & stockholder's equity $ 1,151,767 $ 1,289,700 100.0% 100.0%
0 (0)
Sarajevo Fruit & Vegetable
Statement of Cash Flow
Year Ended 12-31-2006
Cash Flow from Operations
Net Income 34,135
+ Depreciation 102,567
- Increase in A/R (157,500)
- Increase in Inventory (118,000)
-Increase in Prepaid Expenses (5,000)
+ Increase in Accounts payable 177,467
+Increase in Taxes payable 13,000
-Decrease in Other current liabilities (18,604) (108,637)
Net Cash Flow from Operations 28,064
Cash Flow from Investing Activities -
Cash Flow from Financing Activities
Repayment of Principal (68,064)
Net Change in Cash (40,000)
Cash, Beginning of Period 65,000
Cash, End of Period 25,000
&L&"Times New Roman,Bold"&10For the purposes of this appraisal, we have not audited these data. We therefore express no opinion or any other form of assurance on them.

Ratios

Sarajevo Fruit & Vegetable
Ratio Analysis Industry Averages
2005 2006 2007 2008 2009 2010 2011 2005 2006
Liquidity:
Current ratio 1.64 1.57 1.20 1.10
Quick ratio 0.68 0.38 0.75 0.77
Activity
Receivables turnover 4.6 4.0 14.00 15.00
Average Receivables Collection Period 78.8 91.3 26.07 24.33
Inventory turnover 7.8 6.2 42.00 45.00
Average Inventory Processing Period 47.1 58.6 8.69 8.11
Fixed asset turnover 3.9 6.1 12.40 13.20
Total asset turnover 1.5 1.7 6.80 7.20
Debt Management
Debt/Equity 2.18 2.25 1.95 2.05
Times Interest Earned 1.26 1.88 6.30 7.10
Profitability:
Gross margin 35.8% 34.4% 28.00% 27.00%
Operating margin 5.1% 5.2% 11.00% 12.00%
Profit margin on sales 0.7% 1.6% 7.00% 8.00%
Return on assets 1.1% 2.6% 6.00% 6.50%
Return on equity 3.4% 8.6% 12.00% 13.00%
Growth
Sales 22.2% 3.00% 4.00%
All ratios calculated on year end figures
&L&"Times New Roman,Bold"&10For the purposes of this appraisal, we have not audited these data. We therefore express no opinion or any other form of assurance on them.

ForecastAssumptions

Forecast Assumptions
Historical Forecast Forecast Forecast Forecast Forecast
2006 2007 2008 2009 2010 2011
OPERATIONS
Revenue Growth 0.22 0.05 0.05 0.05 0.05 0.05
COGS/Sales 0.66 0.65 0.65 0.65 0.65 0.65
Salaries and social security/sales 0.14 0.15 0.15 0.15 0.15 0.15
Depreciation 102,567 159,900 105,233 63,367 33,500 33,500
Other operating expenses/sales 0.10 0.10 0.10 0.10 0.10 0.10
WORKING CAPITAL
Cash 25,000.00 50,000.00 50,000.00 50,000.00 50,000.00 50,000.00
Receivables/sales 0.25 0.30 0.28 0.25 0.23 0.21
Inventories/sales 0.16 0.15 0.15 0.15 0.15 0.15
Prepaid expenses/sales 0.01 0.01 0.01 0.01 0.01 0.01
Accounts payable/sales 0.25 0.20 0.20 0.20 0.20 0.20
Taxes payable/sales 0.02 0.02 0.02 0.02 0.02 0.02
Other current liabilities 15,000.00 2,000.00 2,000.00 2,000.00 2,000.00 2,000.00
GROSS FIXED ASSETS
Building 238,000 238,000 238,000 238,000 238,000 238,000
Machine 340,000 340,000 540,000 540,000 540,000 540,000
Capital expenditures - 200,000 - - - -
TAXES
Effective Tax Rate 0.35 0.35 0.35 0.35 0.35 0.35
OTHER
Interest expense 59,919 46,604 30,685 11,652 - 0 - 0
Dividends paid - - - - - 0 - 0
Changes in equity
Beginning balance 350,000 350,000 350,000 350,000 350,000 350,000
Sale of equity - - - - -
Ending balance 350,000 350,000 350,000 350,000 350,000 350,000
Interest rate on external funding 0.10 0.10 0.10 0.10 0.10
Interest earned on marketable securities 0.05 0.05 0.05 0.05 0.05
&L&"Times New Roman,Bold"&10For the purposes of this appraisal, we have not audited these data. We therefore express no opinion or any other form of assurance on them.

Pro-forma Statements

Sarajevo Fruit & Vegetable
Pro-Forma Financial Statement(s)
Projected Income Statement Actual
Year(s) ending December 31 2006 2007 2008 2009 2010 2011
Sales 2,150,000 $ 2,257,500 $ 2,370,375 $ 2,488,894 $ 2,613,338 $ 2,744,005
COGS 1,410,000 1,467,375 1,540,744 1,617,781 1,698,670 1,783,603
Gross Profit 740,000 790,125 829,631 871,113 914,668 960,402
Salaries and social security 300,000 338,625 355,556 373,334 392,001 411,601
Depreciation 102,567 159,900 105,233 63,367 33,500 33,500
Other operating expenses 225,000 225,750 237,038 248,889 261,334 274,401
Total operating expenses 627,567 724,275 697,827 685,590 686,835 719,501
Operating income (EBIT) 112,433 65,850 131,804 185,523 227,834 240,901
Interest expense (earnings) 59,919 84,857 61,546 33,038 390 (11,310)
Earnings before taxes (EBT) 52,515 (19,007) 70,258 152,485 227,443 252,211
Income tax 18,380 (6,652) 24,590 53,370 79,605 88,274
Net income before dividends paid 34,135 (12,355) 45,668 99,115 147,838 163,937
Dividends paid - - - - - -
Net income to retained earnings $ 34,135 $ (12,355) $ 45,668 $ 99,115 $ 147,838 $ 163,937
Projected Balance Sheets
December 31, 200X
Actual
2006 2007 2008 2009 2010 2011
Current assets
Cash $ 25,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
Marketable securities - - - - 226,200
Accounts receivable 537,500 677,250 663,705 622,223 601,068 576,241
Inventory, total 345,000 338,625 355,556 373,334 392,001 411,601
Prepaid expenses 32,000 22,575 23,704 24,889 26,133 27,440
Total current assets 939,500 1,088,450 1,092,965 1,070,446 1,069,202 1,291,482 914,500 1,038,450 1,042,965 1,020,446 1,019,202
Fixed assets
Building 238,000 238,000 238,000 238,000 238,000 238,000
Machinery and equipment 340,000 340,000 540,000 540,000 540,000 540,000
Capital Expenditure 200,000 - - - -
Less: A/D (227,800) (387,700) (492,933) (556,300) (589,800) (623,300)
Net fixed assets 350,200 390,300 285,067 221,700 188,200 154,700
Total assets $ 1,289,700 $ 1,478,750 $ 1,378,032 $ 1,292,146 $ 1,257,402 $ 1,446,182
Current liabilities
Short-term Funding 382,528 308,607 213,864 3,904 -
Accounts payable 542,395 451,500 474,075 497,779 522,668 548,801
Taxes payable 41,000 45,150 47,408 49,778 52,267 54,880
Other current liabilities 15,000 2,000 2,000 2,000 2,000 2,000
Total current liabilities 598,395 881,178 832,090 763,421 580,838 605,681
Total long-term liabilities 295,008 213,629 116,331 0 - -
Stockholder's equity
Common stock 350,000 350,000 350,000 350,000 350,000 350,000
Retained earnings 46,297 33,943 79,611 178,726 326,564 490,501
Total stockholder's equity 396,297 383,943 429,611 528,726 676,564 840,501
Total liabilities & stockholder's equity $ 1,289,700 $ 1,478,750 $ 1,378,032 $ 1,292,146 $ 1,257,402 $ 1,446,182
Check (0) - - - - -
Interest rate on external funding 0.10 0.10 0.10 0.10 0.10
Interest earned on marketable securities 0.05 0.05 0.05 0.05 0.05
`
Statement of Cash Flow
Year Ended 12-31-200x
Cash Flow from Operations
Net Income $ (12,355) $ 45,668 $ 99,115 $ 147,838 $ 163,937
+ Depreciation 159,900 105,233 63,367 33,500 33,500
( Increase) Decrease in A/R (139,750) 13,545 41,482 21,156 24,827
( Increase) Decrease in Inventory 6,375 (16,931) (17,778) (18,667) (19,600)
(Increase) Decrease in Prepaid Expenses 9,425 (1,129) (1,185) (1,244) (1,307)
Increase (Decrease) in Short-term funding 382,528 (73,921) (94,743) (209,961) (3,904)
Increase (Decrease) in Accounts payable (90,895) 22,575 23,704 24,889 26,133
Increase (Decrease) in Taxes payable 4,150 2,258 2,370 2,489 2,613
Increase (Decrease) in Other current liabilities (13,000) - - - -
Net Cash Flow from Operations 306,379 97,298 116,331 (0) 226,200 158,833 (53,603) (46,150) (181,338)
Cash Flow from Investing Activities (200,000) - - - - 158,833 (53,603) (46,150) (181,338)
(107,207) (92,301) (362,677)
Cash Flow from Financing Activities
Repayment of Principal (81,379) (97,298) (116,331) (0) -
Dividends Paid - - - - -
Net Change in Cash & MS 25,000 (0) 0 (0) 226,200
Cash, Beginning of Period 25,000 50,000 50,000 50,000 50,000
Cash, End of Period 50,000 50,000 50,000 50,000 50,000
Surplus (Deficit) (0) (0) 0 (0) 226,200
Cumulative Surplus (Deficit) (0) (0) (0) (0) 226,200

Valuation

Sarajevo Fruit & Vegetable
Free Cash Flow to the Firm (FCFF)
2006 2007 2008 2009 2010 2011
Sales 2,150,000 2,257,500 2,370,375 2,488,894 2,613,338 2,744,005
Operating income (1 - T) 73,082 (12,355) 45,668 99,115 147,838 163,937
Depreciation 102,567 159,900 105,233 63,367 33,500 33,500
Capital Expenditures - 200,000 - - - -
Change in non-cash WC (108,637) 158,833 (53,603) (46,150) (181,338) 28,763
FCFF 67,011 106,379 97,298 116,331 (0) 226,200
2,513,333
106,379 97,298 116,331 2,513,333
WACC
Initial Growth Period 0.30
Stable Period 0.15 0.06 Growth Rate in FCFF
Terminal Value (yr 4) 2,513,333
Firm Value (time=0) 1,072,340
Value of the Debt 893,403
Equity Value 178,937

Depr schedule

Building
Cost 240000 Depreciation Summary
Purchase date 1/1/03
Useful life 20 years Year ended 12/31/05 12/31/06 12/31/07 12/31/08 12/31/09 12/31/10 12/31/11
Salvage value 0
Depreciation method straight-line Depreciation Expense $125,233 $ 102,567 $ 159,900 $ 105,233 $ 63,367 $ 33,500 $ 33,500
Accumulated Depreciation $ 125,233 $ 227,800 $ 387,700 $ 492,933 $ 556,300 $ 589,800 $ 623,300
Period Book Value - Beginning of the Period Annual Depreciation Accumulated Depreciation Book Value - End of the Period
1 $ 238,000 $11,900 $ 11,900 $ 226,100
2 226,100 11,900 23,800 214,200
3 214,200 11,900 35,700 202,300
4 202,300 11,900 47,600 190,400
5 190,400 11,900 59,500 178,500
6 178,500 11,900 71,400 166,600
7 166,600 11,900 83,300 154,700
8 154,700 11,900 95,200 142,800
9 142,800 11,900 107,100 130,900
10 130,900 11,900 119,000 119,000
11 119,000 11,900 130,900 107,100
12 107,100 11,900 142,800 95,200
13 95,200 11,900 154,700 83,300
14 83,300 11,900 166,600 71,400
15 71,400 11,900 178,500 59,500
16 59,500 11,900 190,400 47,600
17 47,600 11,900 202,300 35,700
18 35,700 11,900 214,200 23,800
19 23,800 11,900 226,100 11,900
20 11,900 11,900 238,000 -
Machine
Cost 340000
Purchase date 1/1/05
Useful life 5 years
Salvage value 0
Depreciation method SYD
Period Book Value - Beginning of the Period Annual Depreciation Accumulated Depreciation Book Value - End of the Period
1 $ 340,000 $113,333.33 $ 113,333 $ 226,667
2 226,667 $90,666.67 204,000 $ 136,000
3 136,000 $68,000.00 272,000 $ 68,000
4 68,000 $45,333.33 317,333 $ 22,667
5 22,667 $22,666.67 340,000 $ -
Capital Expenditures (DDB - 5 years)
Period Book Value - Beginning of the Period Annual Depreciation Accumulated Depreciation Book Value - End of the Period
1 200,000 $80,000.00 $80,000.00 $ 120,000
2 120,000 $48,000.00 $128,000.00 $ 72,000
3 72,000 $28,800.00 $156,800.00 $ 43,200
4 43,200 $21,600.00 $178,400.00 $ 21,600
5 21,600 $21,600.00 $200,000.00 $ -

loan amortization schedule

Sarajevo Fruit & Vegetable Distribution
Loan Amortization Schedule
1/1/05
Annual Summary
Payment # beginning balance Interest expense Loan payment Principal payment Ending balance 2005 2006 2007 2008 2009
1 $ 420,000 $ 6,300 $ 10,665 $ 4,365 $ 415,635 Interest expense $ 71,055 59,919 46,604 30,685 11,652
2 415,635 6,235 10,665 4,431 411,204 Principal payment $ 56,928 68,064 81,379 97,298 116,331
3 411,204 6,168 10,665 4,497 406,707
4 406,707 6,101 10,665 4,565 402,142
5 402,142 6,032 10,665 4,633 397,509
6 397,509 5,963 10,665 4,703 392,807
7 392,807 5,892 10,665 4,773 388,033
8 388,033 5,821 10,665 4,845 383,189
9 383,189 5,748 10,665 4,917 378,271
10 378,271 5,674 10,665 4,991 373,280
11 373,280 5,599 10,665 5,066 368,214
12 368,214 5,523 10,665 5,142 363,072
13 363,072 5,446 10,665 5,219 357,853
14 357,853 5,368 10,665 5,297 352,555
15 352,555 5,288 10,665 5,377 347,178
16 347,178 5,208 10,665 5,458 341,721
17 341,721 5,126 10,665 5,539 336,181
18 336,181 5,043 10,665 5,623 330,559
19 330,559 4,958 10,665 5,707 324,852
20 324,852 4,873 10,665 5,792 319,060
21 319,060 4,786 10,665 5,879 313,180
22 313,180 4,698 10,665 5,968 307,213
23 307,213 4,608 10,665 6,057 301,156
24 301,156 4,517 10,665 6,148 295,008
25 295,008 4,425 10,665 6,240 288,768
26 288,768 4,332 10,665 6,334 282,434
27 282,434 4,237 10,665 6,429 276,005
28 276,005 4,140 10,665 6,525 269,480
29 269,480 4,042 10,665 6,623 262,857
30 262,857 3,943 10,665 6,722 256,135
31 256,135 3,842 10,665 6,823 249,311
32 249,311 3,740 10,665 6,926 242,386
33 242,386 3,636 10,665 7,029 235,356
34 235,356 3,530 10,665 7,135 228,222
35 228,222 3,423 10,665 7,242 220,980
36 220,980 3,315 10,665 7,351 213,629
37 213,629 3,204 10,665 7,461 206,168
38 206,168 3,093 10,665 7,573 198,596
39 198,596 2,979 10,665 7,686 190,909
40 190,909 2,864 10,665 7,802 183,108
41 183,108 2,747 10,665 7,919 175,189
42 175,189 2,628 10,665 8,037 167,152
43 167,152 2,507 10,665 8,158 158,994
44 158,994 2,385 10,665 8,280 150,713
45 150,713 2,261 10,665 8,405 142,309
46 142,309 2,135 10,665 8,531 133,778
47 133,778 2,007 10,665 8,659 125,120
48 125,120 1,877 10,665 8,788 116,331
49 116,331 1,745 10,665 8,920 107,411
50 107,411 1,611 10,665 9,054 98,357
51 98,357 1,475 10,665 9,190 89,167
52 89,167 1,338 10,665 9,328 79,839
53 79,839 1,198 10,665 9,468 70,372
54 70,372 1,056 10,665 9,610 60,762
55 60,762 911 10,665 9,754 51,008
56 51,008 765 10,665 9,900 41,108
57 41,108 617 10,665 10,049 31,059
58 31,059 466 10,665 10,199 20,860
59 20,860 313 10,665 10,352 10,508
60 10,508 158 10,665 10,508 0