78 Assignment 2: Bullish Forecast 79 You are a Wall Street Microsoft analyst looking to make a name for yourself as a Microsoft Bull. 80 Implement a growth and profitability outlook greater than the Credit Suisse analyst. 81 OpEx is expected to decline as a percentage of revenues due to 'Scale Economies'. 82 In light of your bullish scenario, gross margins may rise as there are positive gains in the faster growing Azure cloud business. 83 Leave the model's default assumptions for Depreciation, Amortization, Net Interest, Other Income and Taxes as they are, equal to the prior year's figures. 84 Use the SFAM 'Income Statement(GAAP)' to make these forecasts in column AH for 2020E. 85 86 Inputs 87 - Revenue Growth: 23% 88 Gross Margins: 66% 89 - OpEx Percent of Revenues*: 30% 90 91 *HINTS: 92 - There is no 'yellow' box in SFAM to insert the answer for OpEx. 93 - We are reconstructing the environment you will encounter when working as a financial analyst. 94 - When financial analysts receive 'guidance' from companies, they are often given a generalization such as 'spending levels will be roughly the same' or 'OpEx will be roughly 30%'. 95 Like a working financial analyst, your job here is to adjust the R&D and SG&A figures until the forecast meets the guidance that OpEx is equal to 30%. 96 - There is no right or wrong answer for the components of OpEx, but a working financial analyst would assure the individual line items make 'sense'. 97 What does that mean? If the prior two numbers were 10% and 8%, the next figure is unlikely to be 20% unless there is a major change occurring. 98 99 Leaving all other assumptions the same, what is your expectation for EBIT margins for 2020E? 100 101 102 What is your EPS and where is it versus the consensus average for GAAP EPS of $5.66 for 2020E? 103 104 78 Assignment 2: Bullish Forecast 79 You are a Wall Street Microsoft analyst looking to make a name for yourself as a Microsoft Bull. 80 Implement a growth and profitability outlook greater than the Credit Suisse analyst. 81 OpEx is expected to decline as a percentage of revenues due to 'Scale Economies'. 82 In light of your bullish scenario, gross margins may rise as there are positive gains in the faster growing Azure cloud business. 83 Leave the model's default assumptions for Depreciation, Amortization, Net Interest, Other Income and Taxes as they are, equal to the prior year's figures. 84 Use the SFAM 'Income Statement(GAAP)' to make these forecasts in column AH for 2020E. 85 86 Inputs 87 - Revenue Growth: 23% 88 Gross Margins: 66% 89 - OpEx Percent of Revenues*: 30% 90 91 *HINTS: 92 - There is no 'yellow' box in SFAM to insert the answer for OpEx. 93 - We are reconstructing the environment you will encounter when working as a financial analyst. 94 - When financial analysts receive 'guidance' from companies, they are often given a generalization such as 'spending levels will be roughly the same' or 'OpEx will be roughly 30%'. 95 Like a working financial analyst, your job here is to adjust the R&D and SG&A figures until the forecast meets the guidance that OpEx is equal to 30%. 96 - There is no right or wrong answer for the components of OpEx, but a working financial analyst would assure the individual line items make 'sense'. 97 What does that mean? If the prior two numbers were 10% and 8%, the next figure is unlikely to be 20% unless there is a major change occurring. 98 99 Leaving all other assumptions the same, what is your expectation for EBIT margins for 2020E? 100 101 102 What is your EPS and where is it versus the consensus average for GAAP EPS of $5.66 for 2020E? 103 104