#N/A Notes Revenues is driven by the growth rate 39 Hints for Working on this Assignment 40 This exercises is a bit like solving a puzzle. 41 First, you do the easy formulas to fill in the box. 42 So, first solve for the Revenues in the forecast year in column F by growing the prior year by the growth rate provided in red. 43 #N/A 44 We did this for you in the Revenue Box without shading. 45 Again, solving the puzzle we fill in the blanks we know for sure. 16 So, your next steps it calculate the historical Gross Profits (in D57 and E57) and the historical Gross Margin (in D58 and E58). 47 Once you know these answers, you can apply the historical model to the forecast. 78 This means you will forecast the Gross Margin and use that information to forecast the Gross Profits. 49 Easy, right? 50 Now you have learned how to build this model and can proceed with the rest of the exercise. 51 52 53 Errors in the model will turn red. The exercise is designed such that an error early in the assignment will not adversely impact later grading 54 55 2018 2019 2020E Relationship 56 Income Statement 57 Revenues 10,433 11,476 Business 58 Growth Rate 10% 10% Driver 59 Cost of Revenues 6,260 7,001 Accounting En 50 i Gross Profits Business 51 Gross Margin 0% Driver 52 Operating Expenses (Opex) 1500 1700 Business 53 OpEx Percent of Revenues 0% Driver 54 EBIT Accounting 55 Net Interest Income (Expense) 84 84 NA 56 Interest Rate 5% 5% 5% Driver 57 Pretax Income Accounting 58 Taxes Business 59 591 Tax Rate 0% Driver 70 Net Income 71! 72 Balance Sheet 73 Cash 1,681 Accounting 34 Accounts Receivable 1,500 1,600 751 Days of Sales Outstanding (DSO) 76 PP&E 15,471 Accounting 77 Accounts Payable 1,000 1,200 Business 78 i Days of Payables Outstanding (DPO) Driver 79 Equity 12,500 30 Gross Profits is calculated as Revenues multiplied by Gross Margin OpEx is calculated as Revenues multiplied by OpEx Percent Revenues EBIT is calculated as Gross Profits minus Operating Expenses (Opex) Interest Income is calculated as Interest Rate multiplied by Cash (as there is no Debt) Pretax Income is calculated as EBIT plus Net Interest Income (Expenses) Taxes is calculated as Pretax Profits multiplied by Tax Rate Cash is previous year Cash plus Increase (Decrease) in Cash Accounts Receivable is calculated as Revenues multiplied by Days of Sales Outstanding (DSO)/365 Days of Sales Outstanding (DSO) is calculated as Accounts Receivable / Revenues 365 PP&E in a year is calculated as PP&E in the previous year plus CapEx in the current year minus Depreciation in the current year Accounts Payable is calculated as Cost of Revenues multiplied by Days of Payables Outstanding (DPO)/365 Days of Payables Outstanding (DPO) is calculated as Accounts Payable / Cost of Revenues. 365 Equity in a year is calculated as Equity in the previous year plus Net Income minus Dividends ALERT: Because the value of the Dividends are shown as a negative on the Cash Flow Statement the value should be added to subtract Dividends Accounting 1,681 1,500 1,600 Balance Sheet Cash Accounts Receivable Days of Sales Outstanding (DSO) ! PP&E Accounts Payable Days of Payables Outstanding (DPO) Equity 15,471 1,000 Cash is previous year Cash plus Increase (Decrease) in Cash Accounts Receivable is calculated as Revenues multiplied by Days of Sales Outstanding (DSO)/365 ( Days of Sales Outstanding (DSO) is calculated as Accounts Receivable / Revenues 365 PP&E in a year is calculated as PP&E in the previous year plus CapEx in the current year minus Depreciation in the current year. Accounts Payable is calculated as Cost of Revenues multiplied by Days of Payables Outstanding (DPO)/365 Days of Payables Outstanding (DPO) is calculated as Accounts Payable / Cost of Revenues 365 Equity in a year is calculated as Equity in the previous year plus Net Income minus Dividends ALERT: Because the value of the Dividends are shown as a negative on the Cash Flow Statement the value should be added to subtract Dividends Accounting Business Driver 1,200 12,500 Hints for Working on the Cash Flow Statement Cash Flow Statements always aggregate (sum up) all the inflows and Outflows of Cash Flow during a period. Inflows of Cash are positive numbers and Outflows of Cash are negative numbers on the Cash Flow Statement. To help you, we show the Outflows in italics. ---------------------------- You should remember that increases in Assets, actually decrease Cash so you are subtracting an increase. In contrast, increases in Liabilities, Debt and Equity increase Cash so you are adding an increase. Capital Expenditures (Capex) are investments of Cash and an Outflow of Cash on the Cash Flow Statement. As an investment, CapEx isn't less than zero, but it is shown as a negative number because it is an Outflow. Dividends are an Outflow of Cash and also shown as a negative number, but Dividends are never less than zero Accounting Accounting 1,547 + Cash Flow Statement Net Income Depreciation - Increase in Accounts Receivable + Increase in Accounts Payable - Capital Expenditures (Capex) - Dividends Payout Ratio = Increase (Decrease) in Cash The company uses 10-year straight line depreciation (10% of PP&E in the previous year) Minus the increase in Accounts Receivable (the Accounts Receivable in the current year minus that in the previous year) Increase in Accounts Payable (the Accounts Payable in the current year minus that in the previous year) ) (800) (1,000) (1,000) - Accounting Accounting Accounting Business Accounting Dividends is the negative of the Net Income multiplied by Payout Ratio 3 747 1 2