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Pro Forma Analysis

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capital expenditures tie lead sales growth ... income statement. balance sheet. Warning!!! Check frequently to ensure your numbers make sense ... – PowerPoint PPT presentation

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Title: Pro Forma Analysis


1
Pro Forma Analysis
  • Used for
  • valuing firms
  • granting credit
  • acquiring companies
  • planning strategy
  • budgeting
  • More art than science

2
Sales Forecast
  • Typically, start with sales forecast
  • fundamental factor determining firms future
  • drives other variables in firm
  • Generally start with historic growth rates
  • Break down by industry/geographic segment
  • Adjust for know economic changes (e.g., Asia)
  • Asymptote to steady-state economy growth
  • E.g., Coke sales will grow 5 in 2003, and then
    grow 4.5 through 2004 and 4 thereafter

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5
Income Statement Forecasts
  • Cost of goods sold and S,GA
  • typically percentage of sales
  • based on adjusted historic
  • Coke CGS will be 30 going forward
  • Coke SGA will be 40 going forward
  • Interest is based on expected debt
  • assumed constant 199 for Coke case
  • Income tax expense is based on tax rates applied
    to pretax income
  • Cokes will be 27 going forward

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7
Working Capital
  • Accounts Receivable tie to sales and terms
  • use accounts receivable turnover (or percent of
    sales)
  • Inventories tie to cost of goods sold
  • use inventory turnover (or percent of sales)
  • Accounts payable tie to purchases and terms (or
    percent of sales)
  • Other working capital typically ties to sales
  • For convenience, we will assume
  • Cash remains at constant percentage of sales
  • Noncash WC of 750 in 2002, 850 in 2003 and
    growth with sales thereafter

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10
  • PPE
  • capital expenditures tie lead sales growth
  • 950 in 2002, 1,100 in 03, with sales growth
    thereafter
  • depreciation is based on capital expenditures
  • 80 of capital expenditures
  • Stock issuance/repurchase and long-term debt tie
    to capital needs
  • Coke repurchases with excess cash

11
  • Dividends are a percent of earnings
  • 45 going forward
  • Retained earnings ties to dividends and net
    income
  • We will assume all excess cash is used to
    repurchase shares

12
  • Statement of cash flows follows from
  • income statement
  • balance sheet
  • Warning!!! Check frequently to ensure your
    numbers make sense
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