(1) Forecast NOPAT for the company for at least 10 years.

Normally, the analyst would use the fundamental forecasting techniques we explored in Strategic Forecasting (Workbook 9) and others to create these forecasts.

Net Operating Profit After Tax (NOPAT) is a method of assessing a company's operating efficiency without considering it's leverage.

NOPAT is the amount of cash a company could theoretically distribute to it's shareholders if it had no debt.

NOPAT is the operating profit of the firm after tax profits earned before interest payments.

NOPAT = EBIT * (1 - t), where t=tax rate

A DCF uses an adjustment to NOPAT to add back the non cash expenses created by accounting accruals.

Cash NOPAT = NOPAT + Depreciation + Amortization

To forecast Cash NOPAT:

- forecast EBITDA for the ten plus year period

(some may simply forecast EBITDA, while others as below may use a top line growth forecast and a profitability forecast)

- apply a cash tax rate assumption

A B G K M N (1) Forecast NOPAT for the company for at least 10 years. Normally, the analyst would use the fundamental forecasting techniques we explored in Strategic Forecasting (Workbook 9) and others to create these forecasts. Net Operating Profit After Tax (NOPAT) is a method of assessing a company's operating efficiency without considering it's leverage. NOPAT is the amount of cash a company could theoretically distribute to it's shareholders if it had no debt. NOPAT is the operating profit of the firm after tax profits earned before interest payments. NOPAT = EBIT * (1t), where t-tax rate A DCF uses an adjustment to NOPAT to add back the non cash expenses created by accounting accruals. Cash NOPAT = NOPAT + Depreciation + Amortization To forecast Cash NOPAT: - forecast EBITDA for the ten plus year period (some may simply forecast EBITDA, while others - as below - may use a top line growth forecast and a profitability forecast) - apply a cash tax rate assumption Activision Blizzard (ATVI) (SMillions, except where noted) 75 Net Bookings* 77Y/N Growth 178 EBITDA 80 EBITDA Margin 2 Cash Taxes 83 Tax Rate 5 Cash NOPAT (Net Operating Profit after Taxes, Before D\&A) Cash NOPAT Margin 187 Y/Y Growth "Activision Blizzard reports Net Bookings as the net amount of products and services sold digitally or sold-in physically to retailers (including license fees, merchandise and publisher incentives). Net Bookings are the same as Net Revenues, which are Revenues excluding or net of deferrals. Notice that these forecasts include significant assumptions: growth, profitability and tax rates. These forecasts assume continued double digit growth rate for many years and very little margin erosion. Do these forecasts appear bullish (optimistic), neutral or bearish (pessimistic) to you