3 4 5 6 7 8 9 10 11 12 Figure 9-MC-1. Financial Statements and Other Data (Millions except per share data) Hatfield Medical Supply: Balance Sheet (Millions of Dollars), Hatfield Medical Supply: Income Statement (Millions of 12/31/2018 Dollars Except per Share) 2018 Cash $20 Sales $2,000.0 Accts. rec. $280 Op. costs (excl. depr.) $1,800.0 Inventories $400 Depreciation $50.0 Total CA $700 EBIT $150.0 Net fixed assets 5500 Interest $40.0 Total assets $1,200 Pretax earnings $110.0 Taxes (40%) $44.0 Accts.pay. & accruals 580 Net Income $66.0 Line of credit $0 Total CL $80 Dividends $20.0 Long-term debt $500 Add. to RE $45.0 Total liabilities $580 Common shares 10.0 Common stock $420 EPS $6.6 Retained earnings $200 DPS $2.0 Total common equ. $620 Ending stock price $52.80 Total liab. & equity $1,200 14 15 16 17 18 19 20 21 22 23 24 25 26 Additional Data Exp. Sales growth rate Interest rate on LT debt Target WACC 2019 10% 8% 28 9% Use the following assumptions to answer the following questions: (1) Operating ratlos remain unchanged. (2) Sales will grow by 10%, 8%, 5%, and 5% for the next 4 years. (3) The target weighted average cost of capital (WACC) is 9%. 31 32 (1) For each of the next 4 years, forecast the following items: sales, cash, accounts receivable, inventories, net fixed assets, accounts 33 payable and accruals, operating costs (excluding depreciation), depreciation, and earnings before interest and taxes (EBIT). (2) Using the previously forecasted items, calculate for each of the next 4 years the net operating profit after taxes (NOPAT), net 34 operating working capital, total operating capital, free cash flow (FCF), annual growth rate in FCF, and return on invested capital. What does the forecasted free cash flow in the first year Imply about the need for external financing? Compare the forecasted ROIC with the 3 WACC. What does this imply about how well the company is performing? (3) Assume that FCF will continue to grow at the growth rate for the last year in the forecast horizon. (Hint:.) What is the horizon value at 2022? What is the present value of the horizon value? What is the present value of the forecasted FCF? (Hint: Use the free cash flows for 2019 through 2022.) What is the current value of operations? Using information from the 2016 financial statements, what is the current estimated Intrinsic stock price? 36 32 138 2018 2019 10% 2020 8% 2021 5% 2022 5% $2,000 $20 $280 $400 $500 $80 Sales Forecast Sales Growth Net sales Operating Assets and Operating Liabilities Cash Accounts receivable Inventories Net PP&E Accounts payable & Accruals Operating Income COGS (excl. depr.) Depreciation Other operating expenses Cost of strategic initiatives EBIT Sales - COGS - Depre. - Oper. Expense Net operating profit after takes (NOPAT)-EBIT X (1-1) Free Cash Flows Net operating working capital Operting CA - Operating CL Total net operating capital Net Operating WC + Net FA FCF NOPAT - A niet op capital Estimated intrinsic Value Target WACC ROIC: NOPAT/[Total op. cap.) $1,800 $50 SO $0 $150 $150 $620 $1,180 HREF! HV2022 FC2022 (1+0) (WACC - Bu Value of Operations (12/31/2018) Present value of HV Present value of ICE Value of operations Estimated intrinsic stock price (12/01/2018) Value of operations + ST Investments Estimated total intrinsic value All debt - Preferred stock Estimated intrinsic value of equity Number of shares Estimate intrinsic stock price 3 4 5 6 7 8 9 10 11 12 Figure 9-MC-1. Financial Statements and Other Data (Millions except per share data) Hatfield Medical Supply: Balance Sheet (Millions of Dollars), Hatfield Medical Supply: Income Statement (Millions of 12/31/2018 Dollars Except per Share) 2018 Cash $20 Sales $2,000.0 Accts. rec. $280 Op. costs (excl. depr.) $1,800.0 Inventories $400 Depreciation $50.0 Total CA $700 EBIT $150.0 Net fixed assets 5500 Interest $40.0 Total assets $1,200 Pretax earnings $110.0 Taxes (40%) $44.0 Accts.pay. & accruals 580 Net Income $66.0 Line of credit $0 Total CL $80 Dividends $20.0 Long-term debt $500 Add. to RE $45.0 Total liabilities $580 Common shares 10.0 Common stock $420 EPS $6.6 Retained earnings $200 DPS $2.0 Total common equ. $620 Ending stock price $52.80 Total liab. & equity $1,200 14 15 16 17 18 19 20 21 22 23 24 25 26 Additional Data Exp. Sales growth rate Interest rate on LT debt Target WACC 2019 10% 8% 28 9% Use the following assumptions to answer the following questions: (1) Operating ratlos remain unchanged. (2) Sales will grow by 10%, 8%, 5%, and 5% for the next 4 years. (3) The target weighted average cost of capital (WACC) is 9%. 31 32 (1) For each of the next 4 years, forecast the following items: sales, cash, accounts receivable, inventories, net fixed assets, accounts 33 payable and accruals, operating costs (excluding depreciation), depreciation, and earnings before interest and taxes (EBIT). (2) Using the previously forecasted items, calculate for each of the next 4 years the net operating profit after taxes (NOPAT), net 34 operating working capital, total operating capital, free cash flow (FCF), annual growth rate in FCF, and return on invested capital. What does the forecasted free cash flow in the first year Imply about the need for external financing? Compare the forecasted ROIC with the 3 WACC. What does this imply about how well the company is performing? (3) Assume that FCF will continue to grow at the growth rate for the last year in the forecast horizon. (Hint:.) What is the horizon value at 2022? What is the present value of the horizon value? What is the present value of the forecasted FCF? (Hint: Use the free cash flows for 2019 through 2022.) What is the current value of operations? Using information from the 2016 financial statements, what is the current estimated Intrinsic stock price? 36 32 138 2018 2019 10% 2020 8% 2021 5% 2022 5% $2,000 $20 $280 $400 $500 $80 Sales Forecast Sales Growth Net sales Operating Assets and Operating Liabilities Cash Accounts receivable Inventories Net PP&E Accounts payable & Accruals Operating Income COGS (excl. depr.) Depreciation Other operating expenses Cost of strategic initiatives EBIT Sales - COGS - Depre. - Oper. Expense Net operating profit after takes (NOPAT)-EBIT X (1-1) Free Cash Flows Net operating working capital Operting CA - Operating CL Total net operating capital Net Operating WC + Net FA FCF NOPAT - A niet op capital Estimated intrinsic Value Target WACC ROIC: NOPAT/[Total op. cap.) $1,800 $50 SO $0 $150 $150 $620 $1,180 HREF! HV2022 FC2022 (1+0) (WACC - Bu Value of Operations (12/31/2018) Present value of HV Present value of ICE Value of operations Estimated intrinsic stock price (12/01/2018) Value of operations + ST Investments Estimated total intrinsic value All debt - Preferred stock Estimated intrinsic value of equity Number of shares Estimate intrinsic stock price