Sample Financial Modeling Module A

Financial Modeling Module I Fall 2010
Confidential not for third party distribution The Kadmos Initiative (Pvt) Ltd. 2009
About The Kadmos Initiative Pvt Ltd.

Isfandiyar Shaheen (Asfi) Instructor Isfandiyar Shaheen (Asfi) is the founder and Chief Executive Officer of The Kadmos Initiative Pvt Ltd. Prior to establishing TKI, Asfi was an investment banker at Seabury Aviation & Aerospace. At Seabury, Asfi has participated in M&A advisory, financial restructuring and privatization assignments. Asfi has extensive experience with financial modeling, valuation and business plan implementation. Prior to joining Seabury, Asfi was an Analyst at Analysis Group, where his primary responsibilities included developing valuation models for commercial litigation cases. Asfi graduated from Franklin and Marshall College (cum laude) with degrees in Economics (Honors) and Mathematics and is Series 7 & 63 qualified. Seabury Aviation & Aerospace is the leading independent transportation-focused investment banking and advisory firm serving aviation, aerospace, cargo and maritime on a global basis. The company's professionals have advised over 225 clients worldwide in the airline, aerospace, cargo/logistics and maritime sectors.
Table of Contents
1. Overview of Financial Modeling 2. Excel Best Practices 3. Kadmos Modeling Framework 4. Thebes Airport: Situation Overview 5. Income Statement and Operating Model 6. Capital Expenditures and D&A Schedules 7. Debt and Interest Schedules 8. Tax Schedule 9. Financial Model Set Up 10. Working Capital Schedule 11. Shareholders Equity Schedule 12. Linking Financial Statements 13. Introduction to Valuation and Preliminary Returns Analysis 14. Control Page and Sensitivity Analysis
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What is a Financial Model?

Simplified representation of historical and projected financial performance Management tool that allows a comprehensive evaluation of the impact a variable can have on a business Marketing tool businesses and entrepreneurs can use for raising capital and M&A purposes Negotiating tool for businesses in financial distress to seek concessions from creditors Valuation and due diligence tool for investors Projection tool used by equity research analysts for forecasting earnings estimates
Modeling Goals
Virtual re-creation of the actual business Ability to test assumptions to analyze historical and projected financial performance
Growth Rates Operating Margins Accounting Regulations Taxation Capital Infusion and/or Divestitures
Understanding the models purpose and possible implications are critical as they determine design and functionality
Modeling Assumptions
Assumptions should be clear and well defined
Also referred to as drivers or inputs
Model integrity based on assumptions

Over simplified and unreasonable assumptions result in meaningless figures
Outlining proper, reasonably accurate assumptions requires a thorough understanding of the business, industry and the prevailing financing environment
Equity research reports are often a good starting point History serves as a useful guide, except for start-ups, companies with significant acquisitions/divestitures or in highly volatile markets There is no substitute for a deep understanding of the business and how it would be affected by changes in its operating environment
Assumptions must be reasonable and defensible
Model Architecture
An effective and efficient model must be realistic, flexible and easy to follow
Unrealistic assumptions result in misleading and often meaningless output
Economic and financial environment is constantly changing, therefore a model must be able to quickly accommodate exogenous and endogenous factors
Well formatted and easy to follow models ensure quality control
Table of Contents
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Spreadsheet Set Up
Start working on a spreadsheet by assigning names to tabs
This can be done by double clicking on an Excel tab or using Alt, O, H, R
The first 4-5 rows on a given tab should include additional description of the tab along with author name
A key detailing color codes is very useful
Time periods typically appear along the horizontal and corresponding line items along the vertical axis Indent cells to the extreme left to navigate quickly between sections on a given tab using Ctrl + Arrow Keys Use different color shading codes for historical and projected financial statements
Spreadsheet Set Up Example
Excel Best Practices

1.Use a consistent color coding scheme and define it on each tab, a suggested color scheme is as follows:
BLACK = Calculations and references on the same sheet BLUE = Inputs (historical financials and assumptions) GREEN = Reference from a different sheet RED = Warning to others (always inset a comment (Alt + I, M) to explain further)
2.Avoid linking cells to a different sheet 3.Dont embed inputs in formulas, instead break out into separate line items
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4.Never input the same number twice, let Excel flow and be dynamic 5.Always enter exact figures and use Excel to round up according to format 6.Do not hide rows, group if necessary
To group rows, first select an entire row (Shift + Space bar), hold shift and use arrow key to select additional rows, then group (Alt + Shift + Right Arrow)
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7.Use Page Setup (Alt, F U) to set up your first sheet and use that sheet as a template for the remaining work book by copying a duplicate sheet (Alt, E M) in the same work book 8.Never merge cells, always use Center Across Selection instead
Select cells using Shift + Arrow key, then hit Ctrl + 1. Under Alignment go to the drop down menu under Horizontal and chose Center Across Selection. Ensure that the Merge Cells check box is unchecked
9.Always use keyboard shortcuts, to navigate shortcuts, hit Alt once and access remaining drop down menus by striking keys which are underlined on the tool bar
For e.g. to change column width, hit Alt, then O to access the Format drop down menu, then C to access the Column menu and finally W to change column width or simply Alt, O, C, W
10.Customize your tool bar in a manner which suits you
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Commonly Used Shortcut Keys

Excel work books must be consistent, efficient and clear Common keyboard shortcuts in MS Excel are as follows:
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Commonly Used Functions

Commonly used functions are as follows:
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Importance of Formatting
Analytical work and good presentation are equally important
Your work represents you (and your firm)
Sloppy, inconsistent work may give the wrong impression about work quality
The numbers may be 100% accurate, yet it may not be enough to secure a deal
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Customizing Number Formats

Customizing number formats allows for more creative and easier formatting, while ensuring optimum functionality
E.g. Assuming numbers are written in $ format ($233,443) to make this appear as (Rs. 233,443), do the following
Chose the cell and hit Ctrl + 1
Under the Number menu, click on Custom and replace $ signs with Rs (ensure you are using quotation marks in this case), and hit OK
It is always advisable to modify pre-programmed formats instead of re-writing a Custom format, as described above
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Conditional Formatting
Use conditional formatting, especially to highlight a situation where the Company in question is running out of cash (the model will indicate this by showing a negative cash balance
To conditionally format a row or column, chose the desired cells (Shift + Arrow Key) and then hit (Alt, O D)
Use the conditional formatting menu to turn the font red in case of a negative number
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Table of Contents
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Core Statements Income Statement

A basic financial model requires the construction of 3 core statements; Income Statement, Balance Sheet and Cash Flow Statement Always begin work on a financial model with the Income Statement, and think clearly about the drivers required to complete Income Statement projections Income Statement items above EBITDA are projected using various methodologies, details of which will be discussed further in the next section
Income Statement
(Pak Rupees in 000s, except per share amounts) Revenue Cost of Goods Sold Gross Profit SG&A Expense EBITDA Depreciation & Amortization EBIT Interest Expense Interest Income EBT Taxes @ 35.0% Net Income Historical Financials Projected Financials 2006 2007 2008 2009 2010 2011 Projections may be developed using historical figures and research reports Management typically provides guidance on expected COGS (Revenue - Cost of Goods Sold) Management typically has a budget which details SG&A Expenses (Gross Profit - SG&A Expenses) Requires Cap Ex and D&A Schedule (EBITDA - Depreciation & Amortization) Requires Debt & Interest Schedule Calculated based on prevailing interest rates and average cash balances (EBIT - Interest Expense + Interest Income) Tax Schedule depending on jurisdiction and Company situation required (Pre-tax Income - Taxes) 2012
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Core Statements Balance Sheet

Once the Income Statement is developed, next steps are projecting the Balance Sheet and preparing a corresponding Cash Flow Statement
It is advisable to project the Balance Sheet first, however some practitioners prefer projecting the Cash Flow Statement and then preparing the corresponding BS
2006 Historical Financials 2007 2008 2009 Projected Financials 2010 2011 2012
Balance Sheet
(Pak Rupees in 000s, except per share amounts) Assets Cash and Equivalents Accounts Receivable Inventory Other Current Assets Total Current Assets Gross PP&E Other Non Current Assets Accumulated Depreciation Total Assets Liabilities and Shareholders' Equity Accounts Payable Accrued Expenses and Other Current Liabilities Total Current Liabilities Secured Debt Unsecured Debt Total Debt Other Non Current Liabilities Total Liabilities Shareholders' Equity Authorized Capital of XXX,XXX,XXX common shares of Rs. XX each Common stock issued at par Additional paid-in capital Accumulated earnings (deficit) Total Shareholder's Equity Total Liabilities & Shareholder's Equity
Previous year's cash balance + change in cash, which comes from CF Statement Requires Working Capital Schedule Requires Working Capital Schedule Requires Working Capital Schedule (Cash and Equivalents + Accounts Receivable + Inventory + Other Current Assets) Existing PP&E + related capital expenditures; Requires CapEx and D&A Schedule Existing Other Non Current Assets + related capital expenditures; Requires CapEx and D&A Schedule Existing Accumulated Depreciation + book depreciation; Requires CapEx and D&A Schedule (Total Current Assets + Gross PP&E + Other Non Current Assets - Accumulated Depreciation)
Requires Working Capital Schedule Requires Working Capital Schedule (Accounts Payable + Accrued Expenses and Other Current Liabilities) Requires Debt and Interest Schedule Requires Debt and Interest Schedule (Secured Debt + Unsecured Debt) Requires schedules detailing unwinding of liabilities OR line item may be projected within the Working Capital Schedule (Total Current Liabilities + Total Debt + Other Non Current Liabilities)
Note: Authorized Capital is not added in the Shareholder's Equity section of the balance sheet Par value of issued shares Capital paid by investors in excess of par value of common stock Previous year's balance + Net Income - Dividends Paid (Common stock + APIC + Accumulated Earnings) (Total Liabilities + Total Shareholder's Equity)
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Core Statements Cash Flow Statement

The Balance Sheet requires a resulting component for it to balance Cash! The Cash Flow statement is thus projected using the Balance Sheet, with cash being the variable that balances a Balance Sheet
Cash Flow Statement
(Pak Rupees in 000s, except per share amounts) Cash Flow from Operations Net Income (+) Depreciation & Amortization (Increase)/Decrease in Accounts Receivable (Increase)/Decrease in Inventory (Increase)/Decrease in Other Current Assets Increase/(Decrease) in Accounts Payable Increase/(Decrease) in Accr. Exp and Other CL Increase/(Decrease) in Accrued Exp. And Other Non CL Total Cash Flow from Operating Activities Cash Flow from Investing Activities (-) Capital Expenditures (+) Asset Sales (-) Acquisition of Assets / Other Securities Total Cash Flow from Investing Activities Cash Flow from Financing (+) Issuance of Common Stock (+) Proceeds from Secured Debt (+) Proceeds from Unsecured Debt (+) Proceeds from Equity Raise from Foreign Investor (-) Dividends Paid (-) Payment of Secured Debt (-) Payment of Unsecured Debt Total Cash Flow from Financing Activities Change in Cash Balance 2006 Historical Financials 2007 2008 2009 Projected Financials 2010 2011 2012
From Income Statement From Income Statement (D&A is a non cash item) For 2009: AR in 2008 - AR in 2009 For 2009: Inventory in 2008 - Inventory in 2009 For 2009: Other Current Assets in 2008 - Other Current Assets in 2009 For 2009: AP in 2009 - AP in 2008 For 2009: Accr. Exp & Other CL in 2009 - Accr. Exp & Other CL in 2008 For 2009: Accr. Exp & Other Non CL in 2009 - Accr. Exp & Other Non CL in 2008 (SUM all items above); Be careful with signs for working capital changes
Management typically provides guidance on CapEx; often CapEx = D&A is assumed Management typically provides guidance on Asset Sales Management typically provides guidance on Acquisition of Assets (Asset Sales - CapEx - Acquisition of Assets)
Management typically provides guidance Requires Debt & Interest Schedule Requires Debt & Interest Schedule Requires Shareholder's Equity Schedule Requires Shareholder's Equity Schedule Requires Debt & Interest Schedule Requires Debt & Interest Schedule (SUM all items above); Be careful with signs for debt payments and debt proceeds (Cash flow from Operation + Investing + Financing) Change in cash is linked back to the balance sheet, and that is how a balance sheet is balanced!
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Kadmos Modeling Framework

1.Construct the Income Statement, all items above EBITDA are projected using various methods which will be discussed further in the next section 2.The following schedules are required to complete the Income Statement
Cap Ex and D&A Schedule Debt and Interest Schedule Tax Schedule
3.Upon completion of Income Statement, prepare the following schedules to project the Balance Sheet, in the following order:
Working Capital Schedule Shareholders Equity Schedule
4.After Step 3 only Cash and Equivalents on the Balance Sheet will remain unfilled, use the Cash Flow Statement to populate projected Cash and Equivalents, and simultaneously complete both Balance Sheet and Cash Flow Statement 5.Incorporate a circular reference to calculate Interest Income in the Income Statement based on Cash and Equivalents on Balance Sheet
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Table of Contents
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Thebes Airport: Overview

Thebes Airport (Company or Thebes) is located in Asia and is majority owned by Frontier Capital Corporation The Company has a market capitalization of Rs. 261 MM as of 05/04/2009 and revenue of approximately Rs. 75 MM Due to an Open Skies treaty between Thebes and neighboring countries, the airport is poised to grow significantly over the next 5 years To facilitate expansion, the airports management is expecting a significant increase in Capital Expenditures which can not be financed by existing cash balances Management has circulated a Request for Proposal to potential investors for an equity investment
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Thebes Airport: Financial Statements

Thebes Airport was established in 1995, presented below are its Income Statement and Balance Sheet
Income Statement
(Pak Rupees in 000s, except per share amounts) Revenue Landing Fees Handling Fees Embarkation Fees Total Operating Revenue Non Operating Revenue Airport Development Fund Flying Club Rental Income Total Revenue Operating Costs Staff salaries Maintenance Marketing & Advertising Other Operating Costs EBITDA 2006 4,188 21,670 14,910 40,769
Historical Financials 2007 4,603 25,179 17,003 46,785
Balance Sheet
2008 4,990 28,318 18,663 51,971
(Pak Rupees in 000s, except per share amounts) Assets Cash and Equivalents Accounts Receivable Inventory Other Current Assets Total Current Assets Gross PP&E Other Non Current Assets Accumulated Depreciation Total Assets Liabilities and Shareholders' Equity Accounts Payable Accrued Expenses and Other Current Liabilities Total Current Liabilities Secured Debt Unsecured Debt Total Debt Other Non Current Liabilities Total Liabilities Shareholders' Equity Authorized Capital of 200,000,000 common shares of Rs. 1 each Common stock issued at par Additional paid-in capital Common stock issued at par to SAS Additional paid-in capital by SAS Accumulated earnings (deficit) Total Shareholder's Equity Total Liabilities & Shareholder's Equity
2006 10,430 13,000 5,000 9,105 37,535 500,000 25,889 (167,654) Rs.395,770
Historical Financials 2007 14,028 13,910 5,400 10,016 43,353 520,000 26,666 (190,054) Rs.399,965
2008 19,970 14,884 5,500 11,017 51,370
9,564 2,000 5,600 Rs.57,933
11,478 2,000 6,735 Rs.66,998
12,389 2,000 8,353 Rs.74,713
540,800 27,466 (213,406) Rs.406,230
(9,044) (8,403) (8,843) (1,200) 30,442
(9,768) (8,874) (9,506) (1,380) 37,470
(10,549) (9,282) (10,267) (1,587) 43,028
2,476 2,467 4,943 24,000 10,000 34,000 10,123 49,066
2,426 2,418 4,844 22,000 9,000 31,000 9,921 45,765
2,378 2,369 4,747 20,000 8,000 28,000 9,722 42,469
Depreciation & Amortization EBIT
(21,400) 9,042
(22,400) 15,070
(23,352) 19,676
Interest Expense Interest Income EBT
(3,190) 939 6,791
(3,085) 939 12,924
(3,020) 939 17,595
100,000 234,987
100,300 235,692
100,601 236,399
Taxes @ 35% Net Income Net Income Margin
(2,377) Rs.4,414 7.6%
(4,523) Rs.8,400 12.5%
(6,158) Rs.11,437 15.3%
11,717 346,704 Rs.395,770
18,208 354,200 Rs.399,965
26,761 363,761 Rs.406,230
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Thebes Airport: Capital Structure

Thebes Airport is a publicly listed company and is majority owned by Frontier Capital Corporation
Valuation as of 05/04/2009
Common shares Outstanding as of 12/31/2008 Stock Price as of 05/04/2009 Market Capitalization (+) Total Debt (-) Cash and Equivalents Enterprise Value FY 2008 Revenue FY 2008 EBITDA FY 2008 Net Income Enterprise Value / Revenue Enterprise Value / EBITDA Price / Earnings 100,601 Rs. 2.6 Rs. 261,562 28,000 19,970 Rs. 269,593 Rs. 74,713 43,028 11,437 3.6x 6.3x 22.9x Market Capitalization = Stock Price X Common Shares Outstanding
Enterprise Value = Market Capitalization + Total Debt - Cash
Capital Structure as of 05/04/2009

Shareholders Frontier Capital Corporation Shareef Brothers Limited Establishment Foundation Publicly Traded Total Common Shares Outstanding % of Total 55% 17% 15% 13% 100% Common shares held 55,345 16,893 15,456 12,907 100,601
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SAS Capital Partners: Situation Overview

SAS Capital Partners is a Rs. 500 Mn investment fund and has retained us as Buy-Side advisor to make an investment in Thebes Airport
SAS typically makes minority investments in infrastructure assets in the MENASA region and has a target IRR of 20%
Investment holding period for SAS is 4-6 years
SAS is interested in acquiring a minority stake in Thebes Airport and requires assistance from us in preparing a financial model as well as performing a preliminary returns analysis
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Table of Contents
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What is an Operating Model?

Development of core revenue and cost drivers which describe a business
A due diligence tool for investors seeking to establish viability of a business
The building blocks of Income Statement items above the EBITDA line
A good operating model is one which can explain very clearly how and why a business generates revenue
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Revenue Projections
At the most basic level Revenue = Price X Volume, which can be further broken down into components Assuming an arbitrary growth rate for revenue based on historical growth and other economic indicators results in projections which are not defensible To understand how and why a business will generate revenue, it is essential to ask the right questions, the following are a few examples:
What were the Companys revenues for the past 3-5 years? What is the growth rate for the industry or major competitors? What is the competitive positioning of the Company? Is it poised to steal market share and outpace industry due to differentiating factors that are sustainable? What are the pricing trends in the industry? When evaluating pricing trends it is critical to identify the customers in the relevant market segment. E.g. Swatch and Rolex are both watch makers, but fall in entirely different market segments
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Airport Economics: Revenue Forecasting

A revenue forecast developed using a bottom-up approach is more useful as compared to making high level and relatively arbitrary assumptions However, it is essential to pick a starting point when developing projections otherwise one can easily get lost in the details:
To project revenue for an airport one requires a traffic forecast Traffic forecast is dependent on the number of aircraft orders placed with OEMs and also regulatory issues Aircraft orders are dependent on the global economy, health of financial markets and the airline industry
Forecasting aircraft orders would typically be beyond the scope of a financial modeling exercise in an M&A transaction or even for business planning purposes There is no correct starting point when using a bottom-up approach, and is usually a judgment call
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Airport Economics: Revenue

What happens at an airport and how do airports generate revenue?
Aircraft lands or takes off, passengers board an airplane or disembark, thus at a basic level, airports charge landing fees, embarkation fees and handling fees
What are landing fees and how can they be projected?

Landing fees should typically depend on aircraft size or weight Thus, for a given aircraft type (e.g. B737-300 which has a Maximum Takeoff Weight of approx 61 tons), multiply number of aircraft movements by aircraft weight by landing charge per ton to arrive at revenue from landing fees
What are handling fees and how can they be projected?

Airport operators charge a fee for passenger luggage and cargo handling, which is typically done on a per flight basis, different business models exist in this case, but for now assume airport operator is charging a fee per aircraft movement Thus, revenue from handling fees is total aircraft movements in a given period multiplied by handling charges / AC movement
What are embarkation fees and how can they be projected?

For every embarking passenger, airport operators charge a fee. To determine passenger movements, a load factor or occupancy rate assumption is required Once passenger movements are determined, multiply total passengers in a given period by embarkation fee / passenger to arrive at revenue from embarkation fees
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Airport Economics: Operating Costs

What are the major operating costs for an airport?
Typically, Staff Salaries, Maintenance and Marketing are the major costs for an airport
How are operating costs projected?

Management often provides guidelines on cost projections, however operating cost drivers can be developed using historical ratios Some suggested cost drivers are as follows:

Staff Salaries as a % of Operating Revenue Maintenance as a % of Property Plant & Equipment Marketing as a % of Revenue Other Operating Costs as a % of Total Operating Costs (Excl. Other Operating Costs)
In the above example, to project Maintenance expense, we require constructing a Capital Expenditures and Depreciation & Amortization schedule to complete the Income Statement
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Airport Economics: Operating Model Set Up

It is advisable to brain storm the operating model set up on a piece of paper In the airport example, we have identified the following as required drivers to project landing, handling and embarkation fees:
Aircraft Weight
Thus, we further require no. of seats in an aircraft and its maximum take off weight (MTOW) An Aircraft Movement is defined as an aircraft landing or aircraft take-off. One arrival and one departure are counted as two aircraft movements Projecting aircraft movements is beyond the scope of this exercise For simplicity all rates are stated on an Aircraft Movement basis We can make assumptions on the average occupancy or load factor* to determine passenger movements
Aircraft Movements
Passengers
For Non Operating Revenue and Operating Costs we can make assumptions based on historical ratios
Thus, we need to list out the above information in a neat, presentable format which will become the basis of our operating model
* Load Factor = Revenue Passenger Mile / Available Seat Mile Confidential not for third party distribution The Kadmos Initiative (Pvt) Ltd. 2009
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Operating Model
Aircraft Specifications B-737-300 A-320 A310 B747 # of Seats LF Assump. MTOW (Tons) Revenue Driver Inflation Assumptions Operating Revenue: Assumption: Landing Charges / Ton Handling Charges / AC Movement Embarkation Fee / Passenger Non Operating Revenue: Assumption: Airport Development Fund Flying Club Rental Income Projected 2008 2009 2010 2011 2012 Rate:
Rate:
Step 1: Set up the operating model as shown

Revenue Driver Rates 2006 Landing Fees / Ton (PKR) Handling Charges / AC Movement (PKR) Embarkation Fees / Passenger (PKR) Aircraft Traffic Forecast Aircraft Movements B-737-300 A-320 A310 B747 Historical Load Factor B-737-300 A-320 A310 B747 Passenger Forecast B-737-300 A-320 A310 B747 Operating Cost Rates 2006 Staff salaries as a % of Operating Revenue Maintenance as a % of PP&E Marketing & Advertising as a % of Revenue Other Operating Costs as a % of Total Op Costs (ex-OOC) 2006 2007 2008 Historical 2007
2009
2010
2011
2012
Input the required historical drivers Note: Inputs are always BLUE
2006
2007
2008
2009
2010
2011
2012
Historical 2007
Projected 2008 2009 2010 2011 2012
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Operating Model
Aircraft Specifications B-737-300 A-320 A310 B747 # of Seats 118 140 184 398 LF Assump. MTOW (Tons) 0.5% Annually 61 0.8% Annually 73 0.0% Annually 160 -0.3% Annually 350 Revenue Driver Inflation Assumptions Operating Revenue: Assumption: Annually - Fixed Landing Charges / Ton Handling Charges / AC Movement Annually - Fixed Embarkation Fee / Passenger Annually - Fixed Non Operating Revenue: Assumption: Airport Development Fund as a % of Op Rev Flying Club as a % of Op Rev Rental Income as a % of Op Rev Projected 2008 Rs.99 60,638 331 2008 176 160 94 37 76% 82% 76% 62% 2008 15,783.7 18,368.0 13,145.0 9,130.1 2009 2010 2011 2012 Rate: 7% 9% 9% Rate: 24% 4% 15%
Step 2: Input required historical figures, rates and drivers to prepare projections
Revenue Driver Rates Landing Fees / Ton (PKR) Handling Charges / AC Movement (PKR) Embarkation Fees / Passenger (PKR) Aircraft Traffic Forecast Aircraft Movements B-737-300 A-320 A310 B747 Historical Load Factor B-737-300 A-320 A310 B747 Passenger Forecast B-737-300 A-320 A310 B747 Operating Cost Rates Staff salaries as a % of Operating Revenue Maintenance as a % of PP&E Marketing & Advertising as a % of Revenue Other Operating Costs as a % of Total Op Costs (ex-OOC) 2006 22.2% 1.7% 15.3% 4.6% 2006 Rs.93 55,000 300 2006 154 130 65 45 74% 83% 72% 70% 2006 13,447.3 15,106.0 8,611.2 12,537.0 Historical 2007 Rs.96 57,750 315 2007 160 156 80 40 77% 84% 73% 65% 2007 14,537.6 18,345.6 10,745.6 10,348.0 Historical 2007 20.9% 1.7% 14.2% 4.9%
Calculated based on Revenue Driver Inflation Assumptions

2009 2010 2011 2012
Air Traffic forecast taken from an Industry Consultants report
Calculated based on LF assumption by aircraft type

2009 2010 2011 2012
Calculated as: # of Seats X Aircraft Movements X Load Factor

Projected
2008 20.3% 1.7% 13.7% 5.3%
2009
2010
2011
2012
Calculations based on average historical ratios
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Operating Model
Aircraft Specifications B-737-300 A-320 A310 B747 # of Seats 118 140 184 398 LF Assump. MTOW (Tons) 0.5% Annually 61 0.8% Annually 73 0.0% Annually 160 -0.3% Annually 350 Revenue Driver Inflation Assumptions Operating Revenue: Assumption: Annually - Fixed Landing Charges / Ton Handling Charges / AC Movement Annually - Fixed Embarkation Fee / Passenger Annually - Fixed Non Operating Revenue: Assumption: Airport Development Fund as a % of Op Rev Flying Club as a % of Op Rev Rental Income as a % of Op Rev Projected 2010 2011 Rs. 113 Rs. 121 72,043 78,527 393 428 2010 188 174 105 35 77% 84% 76% 61% 2010 17,081.7 20,340.6 14,683.2 8,553.0 Projected 2008 20.3% 1.7% 13.7% 5.3% 2009 21.1% 1.7% 14.4% 4.9% 2010 21.1% 1.7% 14.4% 4.9% 2011 21.1% 1.7% 14.4% 4.9% 2012 21.1% 1.7% 14.4% 4.9% 2011 213 197 135 35 78% 84% 76% 61% 2011 19,478.9 23,236.2 18,878.4 8,511.2 Rate: 7% 9% 9% Rate: 24% 4% 15%
Step 3: Calculate projected drivers based on available data

Revenue Driver Rates Landing Fees / Ton (PKR) Handling Charges / AC Movement (PKR) Embarkation Fees / Passenger (PKR) Aircraft Traffic Forecast Aircraft Movements B-737-300 A-320 Forecast taken from Industry A310 Consultants Report B747 Historical Load Factor B-737-300 A-320 Projected LF calculated based A310 on Load Factor Assumption B747 Passenger Forecast B-737-300 A-320 A310 B747 Operating Cost Rates Staff salaries as a % of Operating Revenue Maintenance as a % of PP&E Marketing & Advertising as a % of Revenue Other Operating Costs as a % of Total Op Costs (ex-OOC) 2006 22.2% 1.7% 15.3% 4.6% 2006 Rs.93 55,000 300 2006 154 130 65 45 74% 83% 72% 70% 2006 13,447.3 15,106.0 8,611.2 12,537.0 Historical 2007 Rs.96 57,750 315 2007 160 156 80 40 77% 84% 73% 65% 2007 14,537.6 18,345.6 10,745.6 10,348.0 Historical 2007 20.9% 1.7% 14.2% 4.9%
2008 Rs.99 60,638 331 2008 176 160 94 37 76% 82% 76% 62% 2008 15,783.7 18,368.0 13,145.0 9,130.1
2009 Rs. 106 66,095 361 2009 179 164 100 35 77% 83% 76% 62% 2009 16,158.3 18,999.4 13,984.0 8,594.8
2012 Rs. 130 85,595 467 2012 243 213 156 35 78% 85% 76% 61% 2012 22,365.7 25,347.0 21,815.0 8,469.4
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Airport Economics: Income Statement

Once the operating model drivers are laid out as discussed in the previous slide, set up the Income Statement
Step 4: Set up and link historical Income Statement and identify fields which can be projected based on data gathered thus far
Income Statement 2006 Revenue Landing Fees Links must be in GREEN Handling Fees Embarkation Fees Total Operating Revenue ` Non Operating Revenue Airport Development Fund Flying Club Rental Income Total Revenue Operating Costs Staff salaries Maintenance Marketing & Advertising Other Operating Costs EBITDA 4,188 21,670 14,910 40,769 Historical Financials 2007 4,603 25,179 17,003 46,785 2008 4,990 28,318 18,663 51,971 2009 Projected Financials 2010 2011 2012
(Aircraft Movements X Aircraft MTOW X Landing Fees / Ton) (Aircraft Movements X Handling Charges / Aircraft Movement) (Number of Passengers X Embarkation Fee / Passenger)
9,564 2,000 5,600 Rs.57,933
11,478 2,000 6,735 Rs.66,998
12,389 2,000 8,353 Rs.74,713
(% of Total Operating Revenue based on Historical Ratios) (% of Total Operating Revenue based on Historical Ratios) (% of Total Operating Revenue based on Historical Ratios)
Calculations in BLACK
(9,044) (8,403) (8,843) (1,200) 30,442 (21,400) 9,042 (3,190) 939 6,791 (2,377) 4,414 7.6%
(9,768) (8,874) (9,506) (1,380) 37,470 (22,400) 15,070 (3,085) 939 12,924 (4,523) 8,400 12.5%
(10,549) (9,282) (10,267) (1,587) 43,028 (23,352) 19,676 (3,020) 939 17,595 (6,158) 11,437 15.3%
(% of (% of (% of (% of
Total Operating Revenue based on Historical Ratios) PP&E ); Requires Cap Ex and D&A Schedule Total Revenue based on Historical Ratios) Total Operating Costs (excl. OOC))
Depreciation & Amortization EBIT Interest Expense Interest Income EBT Taxes @ 37.5% Net Income Net Income Margin
Requires Cap Ex and D&A Schedule
Requires Debt and Interest Schedule Requires Cash Balance - Hold Constant at 1,000 for now
Requires Tax Schedule
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Airport Economics: Projected Income Statement

Once the operating model is set up, revenue and certain costs can be projected, additional schedules will be required to complete the Income Statement
Step 5: Populate fields which can be projected and identify schedules required to complete Income Statement
Income Statement 2006 Revenue Landing Fees Handling Fees Embarkation Fees Total Operating Revenue ` Non Operating Revenue Airport Development Fund Flying Club Rental Income Total Revenue Operating Costs Staff salaries Maintenance Marketing & Advertising Other Operating Costs EBITDA Depreciation & Amortization EBIT Interest Expense Interest Income EBT Taxes @ 37.5% Net Income Net Income Margin 4,188 21,670 14,910 40,769 Historical Financials 2007 4,603 25,179 17,003 46,785 2008 4,990 28,318 18,663 51,971 2009 5,417 31,593 20,815 57,826 Projected Financials 2010 2011 6,032 36,166 23,837 66,035 7,425 45,546 30,028 82,999 2012 8,770 55,380 36,415 100,565
9,564 2,000 5,600 Rs.57,933
11,478 2,000 6,735 Rs.66,998
12,389 2,000 8,353 Rs.74,713
13,855 2,487 8,574 Rs.82,742
15,822 2,840 9,791 Rs.94,488
19,887 3,569 12,307 Rs.118,762
24,096 4,325 14,911 Rs.143,897
(9,044) (8,403) (8,843) (1,200) 30,442 (21,400) 9,042 (3,190) 939 6,791 (2,377) 4,414 7.6%
(9,768) (8,874) (9,506) (1,380) 37,470 (22,400) 15,070 (3,085) 939 12,924 (4,523) 8,400 12.5%
(10,549) (9,282) (10,267) (1,587) 43,028 (23,352) 19,676 (3,020) 939 17,595 (6,158) 11,437 15.3%
(12,213) (13,947) (17,530) Requires Cap Ex and D&A Schedule (11,913) (13,605) (17,100) Requires Cap Ex and D&A Schedule
(21,240) (20,719)
Requires Cap Ex and D&A Schedule
Alerts in RED
Requires Debt and Interest Schedule Requires Cash Balance - Hold Constant at 1,000 for now
Requires Tax Schedule
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40
Cap Ex and D&A Overview

Capital Expenditures accumulate Property Plant & Equipment or other Non Current Assets on a companys Balance Sheet
Depreciation and Amortization is a non-cash expense which is recorded to account for the wear and tear of assets
Depreciation is recorded for tangible assets such as PP&E Amortization is recorded for intangible assets such as Goodwill
Depreciation and Amortization is thus added back to Net Income in the Cash Flow statement since it is a non-cash item A Cap Ex and D&A schedule ensures that future Cap Ex does not get lumped in with existing assets
41
Schedule Set Up
Reference and link historical PP&E, Other Non Current Assets, Accumulated Depreciation and related Cap Ex from historical financials
The airport example assumes management has provided guidance on Cap Ex, otherwise the following assumptions are also reasonable:
Cap Ex can be projected as a % of Sales Cap Ex can be projected assuming it remains equal to depreciation
Create a schedule which ensures that subsequent Cap Ex is depreciated separately and not lumped in with existing balances Identify and state depreciation assumption on the schedule
42
Schedule Set Up
Step 6: Set up D&A schedule and link required historical line items
Cap Ex and D&A Schedule

2006 500,000 25,889 (167,654) Historical Financials 2007 2008 520,000 540,800 26,666 27,466 (190,054) (213,406) 20,000 20,800 777 800 22,400 23,352 Projected Financials 2009 2010 2011 2012 (Existing PP&E + Cap Ex on PP&E) (Existing Non Current Assets + Cap Ex on Non Current Assets) (Existing Accumulated D&A + D&A Expense of relevant year) Projected based on management guidance Projected based on management guidance (A + B + C + D)
Property Plant & Equipment Other Non Current Assets Accumulated Depreciation Capital Exependitures - PP&E Capital Exependitures - Other Non Current Assets Depreciation Expense (A + B + C + D)
21,400
D&A Method: Straight Line assuming no residual value
(A)---->
Depreciation on Existing Gross PP&E 18,027 Useful Life (in years) Remaining of Existing Net PP&E 30
Year CapEx Useful Life 2009
18,027
18,027
18,027
2010
2011
2012
2009 2010 2011 2012
23 Years 25 Years 25 Years 25 Years
(B)----> (C)---->
Depreciation on Cap Ex Depreciation on Other Non Current Assets 3,433 Useful Life (in years) Remaining of Existing Net PP&E 8
Year CapEx Useful Life 2009
3,433
3,433
3,433
2010
2011
2012
2009 2010 2011 2012
(D)---->
Depreciation on Cap Ex
43

Step 7: Populate projected line items based on formulae and assumptions

2006 500,000 25,889 (167,654) Historical Financials 2007 520,000 26,666 (190,054) 20,000 777 22,400 2008 540,800 27,466 (213,406) 20,800 800 23,352 2009 585,552 28,466 (236,912) 44,752 1,000 23,506 Projected Financials 2010 2011 631,294 678,066 29,666 30,916 (262,367) (289,818) 45,742 46,772 1,200 1,250 25,455 27,451 2012 725,908 32,166 (319,308) 47,843 1,250 29,490
Property Plant & Equipment Other Non Current Assets Accumulated Depreciation Capital Exependitures - PP&E Capital Exependitures - Other Non Current Assets Depreciation Expense (A + B + C + D) D&A Method: Straight Line assuming no residual value
21,400
(A)---->
Depreciation on Existing Gross PP&E Useful Life (in years) Remaining of Existing Net PP&E
Year CapEx Useful Life
18,027 30
2009
18,027
18,027
18,027
2010
2011
2012
2009 2010 2011 2012
44,752 45,742 46,772 47,843
1,946
1,946 1,830
1,946 1,830 1,871 5,646 3,433
1,946 1,830 1,871 1,914 7,560 3,433
(B)----> (C)---->
Depreciation on Cap Ex Depreciation on Other Non Current Assets Useful Life (in years) Remaining of Existing Net PP&E
Year CapEx Useful Life
1,946 3,433 8
2009
3,775 3,433
2010
2011
2012
2009 2010 2011 2012
1,000 1,200 1,250 1,250
100
100 120
100 120 125 345
100 120 125 125 470
(D)---->
Depreciation on Cap Ex
100
220
44
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45
Debt and Interest Overview

Debt and Interest Schedule is a simplified representation of a companys loan obligations
Debt and Interest Schedule is useful because it allows the user to distinguish and project different types of debt instruments
A fixed rate long term loan is the most basic debt instrument which has a fixed amortization schedule and corresponding interest payments A variable rate loan requires projecting a forward curve for the variable base (KIBOR, LIBOR, Prime Rate etc)
Debt schedules make it easy for the user to make required updates depending on macro-economic news
A central bank announced rate cut will certainly have an impact on any forward curve used to project interest expense
46
Schedule Set Up
Reference and link historical Debt Balances and the following information:
Face Value Term Rate Type (Floating or Fixed) Base Rate Spread
Input a projected forward curve for debt instruments tied to a floating rate
Step 8: Set up the Debt and Interest schedule and input historical balances
Debt & Interest

Debt Obligations Secured Debt Unsecured Debt Face Value 24,000 10,000 Term 12 Years 10 Years Historical 2007 11.0% 22,000 9,000 1,870 1,215 3,085 Type Fixed Floating Base Rate 8.5% KIBOR Projected 2008 14.0% 20,000 8,000 1,700 1,320 3,020 2009 2010 2011 2012 8.0% Spread N/A 2.5%
2006 KIBOR - Historical and Forward Curve Secured Debt - Principal Amount Outstanding Unsecured Debt - Principal Amount Outstanding Secured Debt - Interest Expense Unsecured Debt - Interest Expense Total Interest Expense 9.0% 24,000 10,000 2,040 1,150 3,190
13.0% 12.5% 11.0% (Existing Balance - Face Value / Term) (Existing Balance - Face Value / Term) (Existing Balance X Base Rate [or 8.5% in this case]) (Existing Balance X (Base Rate + Spread)
47
Debt and Interest Schedule

Calculate projected debt and interest payments based on available data In yearly models assuming interest expense = interest payment is a safe assumptions
However, in quarterly on monthly models this is not the case
Step 9: Complete the Debt & Interest Schedule
Debt & Interest

Debt Obligations Secured Debt Unsecured Debt Face Value 24,000 10,000 Term 12 Years 10 Years Historical 2007 11.0% 22,000 9,000 1,870 1,215 3,085 Type Fixed Floating Base Rate 8.5% KIBOR Projected 2008 14.0% 20,000 8,000 1,700 1,320 3,020 2009 13.0% 18,000 7,000 1,530 1,085 2,615 2010 12.5% 16,000 6,000 1,360 900 2,260 2011 11.0% 14,000 5,000 1,190 675 1,865 2012 8.0% 12,000 4,000 1,020 420 1,440 Spread N/A 2.5%
2006 KIBOR - Historical and Forward Curve Secured Debt - Principal Amount Outstanding Unsecured Debt - Principal Amount Outstanding Secured Debt - Interest Expense Unsecured Debt - Interest Expense Total Interest Expense 9.0% 24,000 10,000 2,040 1,150 3,190
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49
Taxes Overview
Pre-Tax Income or EBT is typically taxed at a fixed percentage, which ranges from approx. 35-38% depending on jurisdiction, and for simple cases such as the example being discussed in this course, a Tax Schedule is not necessarily required However, in cases where the company under review has significant Net Operating Losses or taxation is based on a metric other than EBT, a detailed Tax Schedule is required In the airport example under discussion, we are assuming EBT is taxed at 35%, and no taxes are paid if EBT is negative
50
Schedule Set Up
Reference and link historical taxes paid Calculate historical tax rate In practice, arriving at a constant tax rate for each year is not usually the case
Step 10: Set up the Tax schedule and input historical figures
Tax Schedule
2006 EBT Tax Rate Taxes Payable Rs. 6,791.0 35.0% ($2,376.9) Historical 2007 Rs. 12,923.8 35.0% ($4,523.3) Projected 2008 Rs. 17,595.0 35.0% ($6,158.3) 2009 2010 2011 2012
51
Tax Schedule
Link projected Earnings Before Taxes (EBT) Apply a projected tax rate based on historical figures Incorporate an IF statement which ensures that if EBT is negative, no taxes are paid
Step 11: Complete the Tax Schedule
Tax Schedule
2006 EBT Tax Rate Taxes Payable Rs. 6,791.0 35.0% ($2,376.9) Historical 2007 Rs. 12,923.8 35.0% ($4,523.3) Projected 2008 Rs. 17,595.0 35.0% ($6,158.3) 2009 Rs. 22,472.5 35.0% ($7,865.4) 2010 Rs. 28,792.7 35.0% ($10,077.4) 2011 Rs. 43,783.9 35.0% ($15,324.4) 2012 Rs. 59,340.8 35.0% ($20,769.3)
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53
Financial Model Set Up

Upon completing Cap Ex-D&A, Debt & Interest and Tax Schedules we are ready to populate the Income Statement and set up our Financial Model
Step 12: Populate the remaining items on the Income Statement and assume an arbitrary figure for Interest Income for now
Income Statement 2006 Revenue Landing Fees Handling Fees Embarkation Fees Total Operating Revenue ` Non Operating Revenue Airport Development Fund Flying Club Rental Income Total Revenue Operating Costs Staff salaries Maintenance Marketing & Advertising Other Operating Costs EBITDA Depreciation & Amortization EBIT Interest Expense Interest Income EBT Taxes @ 37.5% Net Income Net Income Margin 4,188 21,670 14,910 40,768.6 Historical Financials 2007 4,603 25,179 17,003 46,784.7 Projected Financials 2010 2011 6,032 36,166 23,837 66,034.6 7,425 45,546 30,028 82,999.0
2008 4,990 28,318 18,663 51,971.1
2009 5,417 31,593 20,815 57,825.7
2012 8,770 55,380 36,415 100,565.2
9,564 2,000 5,600 Rs.57,932.6
11,478 2,000 6,735 Rs.66,997.7
12,389 2,000 8,353 Rs.74,713.1
13,855 2,487 8,574 Rs.82,742.0
15,822 2,840 9,791 Rs.94,488.0
19,887 3,569 12,307 Rs.118,762.1
24,096 4,325 14,911 Rs.143,897.3
(9,044) (8,403) (8,843) (1,200) 30,442 (21,400) 9,042 (3,190) 939 6,791 (2,377) 4,414 7.6%
(9,768) (8,874) (9,506) (1,380) 37,470 (22,400) 15,070 (3,085) 939 12,924 (4,523) 8,400 12.5%
(10,549) (9,282) (10,267) (1,587) 43,028 (23,352) 19,676 (3,020) 939 17,595 (6,158) 11,437 15.3%
(12,213) (9,961) (11,913) (1,675) 46,980 (23,506) 23,474 (2,615) 1,000 21,859 (7,651) 14,209 17.2%
(13,947) (10,739) (13,605) (1,881) 54,316 (25,455) 28,861 (2,260) 1,000 27,601 (9,660) 17,941 19.0%
(17,530) (11,535) (17,100) (2,268) 70,330 (27,451) 42,879 (1,865) 1,000 42,014 (14,705) 27,309 23.0%
(21,240) (12,349) (20,719) (2,668) 86,922 (29,490) 57,432 (1,440) 1,000 56,992 (19,947) 37,045 25.7%
54

Step 13: Project Balance Sheet using existing information and schedules, and identify additional schedules required
Balance Sheet
(Pak Rupees in 000s, except per share amounts) Assets Cash and Equivalents Accounts Receivable Inventory Other Current Assets Total Current Assets Gross PP&E Other Non Current Assets Accumulated Depreciation Total Assets Liabilities and Shareholders' Equity Accounts Payable Accrued Expenses and Other Current Liabilities Total Current Liabilities Secured Debt Unsecured Debt Total Debt Other Non Current Liabilities Total Liabilities Shareholders' Equity Authorized Capital of 200,000,000 common shares of Rs. 1 each Common stock issued at par Additional paid-in capital Common stock issued at par to SAS Additional paid-in capital by SAS Accumulated earnings (deficit) Total Shareholders' Equity Total Liabilities & Shareholders' Equity 2006 10,430 13,000 5,000 9,105 37,535 500,000 25,889 (167,654) 395,770
Historical Financials 2007 14,028 13,910 5,400 10,016 43,353 520,000 26,666 (190,054) 399,965
2008 19,970 14,884 5,500 11,017 51,370 540,800 27,466 (213,406) 406,230
2009
Projected Financials 2010 2011
2012
Recquires Cash Flow Statement completed Requires Working Capital Schedule Requires Working Capital Schedule Requires Working Capital Schedule
Linked to Cap Ex and D&A Schedule

585,552 28,466 (236,912) 377,106 631,294 29,666 (262,367) 398,593 678,066 30,916 (289,818) 419,163 725,908 32,166 (319,308) 438,766
2,476 2,467 4,943 24,000 10,000 34,000 10,123 49,066
2,426 2,418 4,844 22,000 9,000 31,000 9,921 45,765
2,378 2,369 4,747 20,000 8,000 28,000 9,722 42,469
Requires Working Capital Schedule Requires Working Capital Schedule
Linked to Debt and Interest Schedule

18,000 7,000 25,000 16,000 6,000 22,000 14,000 5,000 19,000 12,000 4,000 16,000
Requires Working Capital Schedule
100,000 234,987
100,300 235,692
100,601 236,399
11,717 346,704 395,770
18,208 354,200 399,965
26,761 363,761 406,230
Requires Shareholder's Equity schedule Requires Shareholder's Equity schedule Requires Shareholder's Equity schedule Requires Shareholder's Equity schedule Previous Year's Balance + Net Income - Dividends
55
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56
Working Capital Overview

Working Capital is defined as Current Assets Current Liabilities and represents the operating liquidity available to a business
Typically, Working Capital has three components

Accounts Receivable Inventory Accounts Payable
Accounts Receivable, Inventory and Accounts Payable are projected based on collection periods and number of days for which they remain outstanding
57
Schedule Set Up
Where available, always use historical working capital ratios to develop projections, otherwise utilize industry averages based comparables Assume 364.25 days in a year to account for leap years
Step 14: Set up the Working Capital Schedule by linking Total Revenue and Operating Costs
Working Capital
(Pak Rupees in 000s, except per share amounts) 2006 Total Revenue Total Operating Costs Assets Accounts Receivable Inventory Other Current Assets Liabilities Accounts Payable Accrued Expenses and Other Current Liabilities Other Non Current Liabilities Ratios and Assumptions Days in a Year Accounts Receivable (Collection Period in Days) Inventory (Days Outstanding) Other Current Assets as a % of Total Revenue Accounts Payable (Days Payable) Accrued Expenses and Other CL (as a % of Op Costs) Other Non Current Liabilities (as a % of Op Costs) 57,933 (27,490) Historical Financials 2007 66,998 (29,528) 2008 74,713 (31,685) 2009 82,742 (35,762) Projected Financials 2010 2011 94,488 (40,172) 118,762 (48,432) 2012 143,897 (56,975)
13,000 5,000 9,105
13,910 5,400 10,016
14,884 5,500 11,017
(Total Revenue X AR Collection Period / Days in a Year) (Total Operating Costs X Inv Days Outstanding / Days in a Year) (Total Revenue X Other Current Assets as a % of Revenue)
2,476 2,467 10,123
2,426 2,418 9,921
2,378 2,369 9,722
(Total Operating Costs X AP (Days Payable) / Days in a Year) (Total Operating Costs X Accr. Exp and OCL as a % of Op Costs) (Total Operating Costs X Other Non CL as a % of Op Costs)
364.25 AR Balance X Days In a Year / Total Revenue Inventory Balance X Days in a Tear / Total Op Costs Current Assets / Total Revenue AP Balance X Days in a Year / Total Operating Costs Accr. Exp and Other CL / Total Operating Costs Other Non CL / Total Operating Costs
Use appropriate averages for historical ratios or incorporate working capital improvements based on management discussions
58
Working Capital Schedule

An increase in liabilities implies an increase in cash, and in increase in assets implies a decrease in cash Other Non Current Liabilities are not a component of Working Capital, but has been included in this schedule for simplicity
Step 15: Project working capital accounts based on projected drivers
Working Capital
(Pak Rupees in 000s, except per share amounts) 2006 Total Revenue Total Operating Costs Assets Accounts Receivable Inventory Other Current Assets Liabilities Accounts Payable Accrued Expenses and Other Current Liabilities Other Non Current Liabilities Ratios and Assumptions Days in a Year Accounts Receivable (Collection Period in Days) Inventory (Days Outstanding) Other Current Assets as a % of Total Revenue Accounts Payable (Days Payable) Accrued Expenses and Other CL (as a % of Op Costs) Other Non Current Liabilities (as a % of Op Costs) 57,933 (27,490) Historical Financials 2007 66,998 (29,528) 2008 74,713 (31,685) 2009 82,742 (35,762) Projected Financials 2010 2011 94,488 (40,172) 118,762 (48,432) 2012 143,897 (56,975)
13,000 5,000 9,105
13,910 5,400 10,016
14,884 5,500 11,017
17,410 6,417 12,525
19,103 6,878 14,303
23,032 7,893 17,977
26,722 8,816 21,782
2,476 2,467 10,123
2,426 2,418 9,921
2,378 2,369 9,722
2,948 2,937 12,052
3,311 3,299 13,539
3,992 3,978 16,323
4,697 4,679 19,202
364.25 82 66 15.7% 33 9.0% 36.8%
Incorporate Working Capital Improvements if required

76 67 14.9% 30 8.2% 33.6% 73 63 14.7% 27 7.5% 30.7% 77 65 15.1% 30 8.2% 33.7% 74 62 15.1% 30 8.2% 33.7% 71 59 15.1% 30 8.2% 33.7% 68 56 15.1% 30 8.2% 33.7%
59
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60
Shareholders Equity Overview

Shareholders Equity is the interest in remaining assets of a company spread among shareholders and is defined as Total Assets Total Liabilities Shareholders Equity has the following components
Authorized Capital Paid up Capital Additional Paid in Capital Accumulated Earnings / (Deficit)
Authorized Capital is the maximum the Company is authorized to issue to its shareholders and is thus not summed up when calculating Shareholders Equity
61
Schedule Set Up
Set up a schedule which assumes annual dividend payment but no additional issuance of shares or re-purchases
Assume that this restriction has been imposed by SAS Capital as a pre-condition for making a minority investment in Thebes Airport
Step 16: Link historical ending equity balance and identify dividends paid in the past three years to calculate dividend pay out ratio
Shareholder's Equity Schedule

Historical Financials 2007 8,400 Projected Financials 2009 2010 2011 361,748 14,209 17,941 27,309 Requires Valuation Consideration Schedule Requires Valuation Consideration Schedule Link to Calculation Below (SUM the above, be careful with signs)
2006 Beginning Equity Balance Net Income Additional shares issued to SAS at par Additional paid in capital by SAS Dividends Paid Ending Equity Balance 4,414
2008 11,437
2012 37,045
(1,545.0) 346,704
(1,909.0) 353,195
(2,884.5) 361,748
Dividend Assumptions Total Dividends Paid Net Income Divident Payout Ratio
1,545.0 4,414 35%
1,909.0 8,400 23%
2,884.5 11,437 25%
(Net Income X Dividend Pay Out Ratio) 14,209 17,941 27,309 (Assumption based on historical ratios)
37,045
62
SAS Capital Partners Investment Proposal

Assume for now that SAS Capital decides to invest Rs. 30 MM at Rs 2.8 / share for 9.6% of the Company
Details of how SAS arrived at Rs 2.8 / share will be discussed later
Private Placement Proposal Summary
Investment Amount offered by SAS Capital Offer price / share Additional Shares Issued to SAS Current Shares Outstanding Common shares outstanding post SAS investment Stock Price as of 05/04/2009 Premium Paid by SAS Capital 30,000 Rs. 2.8 10,714 100,601 111,315 Rs. 2.6 7.7%
The purchase offer implies an 7.7% premium over the current stock price
Assume existing shareholders interest in Thebes is proportionally diluted as a result of SAS investment
Capital Structure as of 05/04/2009
Shareholders Frontier Capital Corporation Shareef Brothers Limited Establishment Foundation Publicly Traded Total Common Shares Outstanding % of Total 55% 17% 15% 13% 100% Common shares held 55,345 16,893 15,456 12,907 100,601
Capital Structure post SAS Investment

Shareholders Frontier Capital Corporation Shareef Brothers Limited Establishment Foundation SAS Capital Partners Publicly Traded Total Common Shares Outstanding % of Total 49.7% 15.2% 13.9% 9.6% 11.6% 100% Common shares held 55,345 16,893 15,456 10,714 12,907 111,315
63
Shareholders Equity Schedule

A Rs. 30 MM investment at Rs. 2.8 / share implies 10,714 additional shares were issued to SAS and the remaining amount was additional paid in capital For simplicity assume that no additional shares will be re-purchased or issued post SAS investment in Thebes Airport
Step 17: Complete the Shareholders Equity Schedule by calculating projected balances
Shareholder's Equity Schedule

Historical Financials 2007 8,400 Projected Financials 2010 2011 402,688 416,503 17,941 27,309
2006 Beginning Equity Balance Net Income Additional shares issued to investor at par Additional paid in capital by investor Dividends Paid Ending Equity Balance 4,414
2008 11,437
(1,545.0) 346,704
(1,909.0) 353,195
(2,884.5) 361,748
2009 361,748 14,209 10,714 19,286 (3,268.0) 402,688
2012 437,530 37,045
(4,126.3) 416,503
(6,281.0) 437,530
(8,520.3) 466,055
Dividend Assumptions Total Dividends Paid Net Income Divident Payout Ratio
1,545.0 4,414 35%
1,909.0 8,400 23%
2,884.5 11,437 25%
3,268.0 14,209 23%
4,126.3 17,941 23%
6,281.0 27,309 23%
8,520.3 37,045 23%
64
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65

Let us return to the partially completed Balance Sheet from the earlier illustration
Balance Sheet
(Pak Rupees in 000s, except per share amounts) Assets Cash and Equivalents Accounts Receivable Inventory Other Current Assets Total Current Assets Gross PP&E Other Non Current Assets Accumulated Depreciation Total Assets Liabilities and Shareholders' Equity Accounts Payable Accrued Expenses and Other Current Liabilities Total Current Liabilities Secured Debt Unsecured Debt Total Debt Other Non Current Liabilities Total Liabilities Shareholders' Equity Authorized Capital of 200,000,000 common shares of Rs. 1 each Common stock issued at par Additional paid-in capital Common stock issued at par to SAS Additional paid-in capital by SAS Accumulated earnings (deficit) Total Shareholders' Equity Total Liabilities & Shareholders' Equity 2006 10,430 13,000 5,000 9,105 37,535 500,000 25,889 (167,654) 395,770 Historical Financials 2007 14,028 13,910 5,400 10,016 43,353 520,000 26,666 (190,054) 399,965 2008 19,970 14,884 5,500 11,017 51,370 540,800 27,466 (213,406) 406,230 2009 Projected Financials 2010 2011 2012
Recquires Cash Flow Statement completed Requires Working Capital Schedule Requires Working Capital Schedule Requires Working Capital Schedule
Linked to Cap Ex and D&A Schedule

585,552 28,466 (236,912) 377,106 631,294 29,666 (262,367) 398,593 678,066 30,916 (289,818) 419,163 725,908 32,166 (319,308) 438,766
2,476 2,467 4,943 24,000 10,000 34,000 10,123 49,066
2,426 2,418 4,844 22,000 9,000 31,000 9,921 45,765
2,378 2,369 4,747 20,000 8,000 28,000 9,722 42,469
Requires Working Capital Schedule Requires Working Capital Schedule
Linked to Debt and Interest Schedule

18,000 7,000 25,000 16,000 6,000 22,000 14,000 5,000 19,000 12,000 4,000 16,000
Requires Working Capital Schedule
100,000 234,987
100,300 235,692
100,601 236,399
11,717 346,704 395,770
18,208 354,200 399,965
26,761 363,761 406,230
Requires Shareholder's Equity schedule Requires Shareholder's Equity schedule Requires Shareholder's Equity schedule Requires Shareholder's Equity schedule Previous Year's Balance + Net Income - Dividends
66
Linking Financial Statements

Upon linking the remaining items, only the Cash and Equivalents line item remains, which will be populated after completing the Cash Flow Statement
Step 18: Link remaining items to the Working Capital and Shareholders Equity Schedules
Balance Sheet
2008 19,970 14,884 5,500 11,017 51,370 540,800 27,466 (213,406) 406,230
2009
2012
To be calculated after completion of Cash Flow Statement 17,410 19,103 23,032 26,722 6,417 6,878 7,893 8,816 12,525 14,303 17,977 21,782 36,352 40,284 48,903 57,320 585,552 28,466 (236,912) 413,458 631,294 29,666 (262,367) 438,876 678,066 30,916 (289,818) 468,066 725,908 32,166 (319,308) 496,086
2,476 2,467 4,943 24,000 10,000 34,000 10,123 49,066
2,426 2,418 4,844 22,000 9,000 31,000 9,921 45,765
2,378 2,369 4,747 20,000 8,000 28,000 9,722 42,469
2,948 2,937 5,885 18,000 7,000 25,000 12,052 42,938
3,311 3,299 6,611 16,000 6,000 22,000 13,539 42,149
3,992 3,978 7,970 14,000 5,000 19,000 16,323 43,293
4,697 4,679 9,376 12,000 4,000 16,000 19,202 44,578
100,000 234,987
100,300 235,692
100,601 236,399
11,717 346,704 395,770
18,208 354,200 399,965
26,761 363,761 406,230
100,601 236,399 10,714 19,286 37,701 404,701 447,639
100,601 236,399 10,714 19,286 51,516 418,515 460,665
100,601 236,399 10,714 19,286 72,543 439,543 482,836
100,601 236,399 10,714 19,286 101,068 468,068 512,646
67

Before populating the Cash Flow Statement, review the formulae and links required
Step 19: Set up the Cash Flow Statement
Cash Flow Statement

(Pak Rupees in 000s, except per share amounts) Cash Flow from Operations Net Income (+) Depreciation & Amortization (Increase)/Decrease in Accounts Receivable (Increase)/Decrease in Inventory (Increase)/Decrease in Other Current Assets Increase/(Decrease) in Accounts Payable Increase/(Decrease) in Accr. Exp and Other CL Increase/(Decrease) in Accrued Exp. And Other Non CL Total Cash Flow from Operating Activities Cash Flow from Investing Activities (-) Capital Expenditures (+) Asset Sales (-) Acquisition of Assets / Other Securities Total Cash Flow from Investing Activities Cash Flow from Financing (+) Issuance of Common Stock (+) Proceeds from Secured Debt (+) Proceeds from Unsecured Debt (+) Proceeds from Equity Raise from Foreign Investor (-) Dividends Paid (-) Payment of Secured Debt (-) Payment of Unsecured Debt Total Cash Flow from Financing Activities Change in Cash Balance 2006
Historical Financials 2007
2008
2009
2012
From Income Statement From Income Statement (D&A is a non cash item) For 2009: AR in 2008 - AR in 2009 For 2009: Inventory in 2008 - Inventory in 2009 For 2009: Other Current Assets in 2008 - Other Current Assets in 2009 For 2009: AP in 2009 - AP in 2008 For 2009: Accr. Exp & Other CL in 2009 - Accr. Exp & Other CL in 2008 For 2009: Accr. Exp & Other Non CL in 2009 - Accr. Exp & Other Non CL in 2008 (SUM all items above); Be careful with signs for working capital changes
Management typically provides guidance on CapEx; often CapEx = D&A is assumed Management typically provides guidance on Asset Sales Management typically provides guidance on Acquisition of Assets (Asset Sales - CapEx - Acquisition of Assets)
Management typically provides guidance Requires Debt & Interest Schedule Requires Debt & Interest Schedule Requires Shareholder's Equity Schedule Requires Shareholder's Equity Schedule Requires Debt & Interest Schedule Requires Debt & Interest Schedule (SUM all items above); Be careful with signs for debt payments and debt proceeds (Cash flow from Operation + Investing + Financing) Change in cash is linked back to the balance sheet, and that is how a balance sheet is balanced!
68

Pay careful attention to signs, especially for working capital accounts
Step 20: Complete the Cash Flow Statement from the corresponding Balance Sheet
Historical Financials Cash Flow Statement (Pak Rupees in 000s, except per share amounts) 2006 2007 Cash Flow from Operations Net Income 8,400 (+) Depreciation & Amortization 22,400 (Increase)/Decrease in Accounts Receivable (910) (Increase)/Decrease in Inventory (400) (Increase)/Decrease in Other Current Assets (911) Increase/(Decrease) in Accounts Payable (50) Increase/(Decrease) in Accrued Expenses & Other Current Liabilities (49) Increase/(Decrease) in Accrued Expenses & Other Non Current Liabilities (202) Total Cash Flow from Operating Activities 28,279 Cash Flow from Investing Activities (-) Capital Expenditures on PP&E (-) Capital Expenditures on Other Non Current Assets (+) Asset Sales (-) Acquisition of Assets / Other Securities Total Cash Flow from Investing Activities Cash Flow from Financing (+) Issuance of Common Stock (+) Proceeds from Secured Debt (+) Proceeds from Unsecured Debt (+) Proceeds from Equity Raise from Foreign Investor (-) Dividends Paid (-) Payment of Secured Debt (-) Payment of Unsecured Debt Total Cash Flow from Financing Activities Change in Cash Balance Projected Financials 2010 2011 18,078 25,455 (1,693) (460) (1,778) 363 362 1,486 41,813 27,056 27,451 (3,929) (1,015) (3,674) 681 678 2,784 50,031
2008 11,437 23,352 (974) (100) (1,002) (49) (48) (198) 32,418
2009 14,591 23,506 (2,526) (917) (1,508) 570 568 2,330 36,614
2012 36,675 29,490 (3,690) (923) (3,805) 704 702 2,879 62,032
(20,000)
(20,800)
(44,752) (1,000)
(45,742) (1,200)
(46,772) (1,250)
(47,843) (1,250)
(20,000)
(20,800)
(45,752)
(46,942)
(48,022)
(49,093)
(2,000) (1,000) (3,000) 5,279
(2,000) (1,000) (3,000) 8,618
30,000.0 (3,268.0) (2,000) (1,000) 23,732 14,594
0.0 (4,126.3) (2,000) (1,000) (7,126) (12,255)
0.0 (6,281.0) (2,000) (1,000) (9,281) (7,272)
0.0 (8,520.3) (2,000) (1,000) (11,520) 1,419
69

Step 21: Link the change in cash to the existing balance sheet; Include a Balance Sheet Check (Total Assets = Total Liab + SH Equity)
Balance Sheet
2008 19,970 14,884 5,500 11,017 51,370 540,800 27,466 (213,406) 406,230
2009 34,563 17,410 6,417 12,525 70,915 585,552 28,466 (236,912) 448,021
Projected Financials 2010 2011 22,308 19,103 6,878 14,303 62,592 631,294 29,666 (262,367) 461,185 15,037 23,032 7,893 17,977 63,939 678,066 30,916 (289,818) 483,103
2012 16,456 26,722 8,816 21,782 73,776 725,908 32,166 (319,308) 512,542
2,476 2,467 4,943 24,000 10,000 34,000 10,123 49,066
2,426 2,418 4,844 22,000 9,000 31,000 9,921 45,765
2,378 2,369 4,747 20,000 8,000 28,000 9,722 42,469
2,948 2,937 5,885 18,000 7,000 25,000 12,052 42,938
3,311 3,299 6,611 16,000 6,000 22,000 13,539 42,149
3,992 3,978 7,970 14,000 5,000 19,000 16,323 43,293
4,697 4,679 9,376 12,000 4,000 16,000 19,202 44,578
100,000 234,987
100,300 235,692
100,601 236,399
11,717 346,704 395,770
18,208 354,200 399,965
26,761 363,761 406,230
100,601 236,399 10,714 19,286 38,084 405,084 448,021
100,601 236,399 10,714 19,286 52,036 419,035 461,185
100,601 236,399 10,714 19,286 72,810 439,810 483,103
100,601 236,399 10,714 19,286 100,965 467,965 512,542
70

Ensure iterations are enabled in MS Excel
Hit Alt + T, O and under the Calculations tab check Iteration
Step 22: Calculate Interest Income by incorporating a circular reference from projected cash balances
Income Statement
(Pak Rupees in 000s, except per share amounts) Revenue Landing Fees Handling Fees Embarkation Fees Total Operating Revenue Non Operating Revenue Airport Development Fund Flying Club Rental Income Total Revenue Operating Costs Staff salaries Maintenance Marketing & Advertising Other Operating Costs EBITDA Depreciation & Amortization EBIT Interest Expense Interest Income EBT Taxes @ 35% Net Income Net Income Margin Interest Income Rate 2006 4,188 21,670 14,910 40,768.6 Historical Financials 2007 2008 4,603 4,990 25,179 28,318 17,003 18,663 46,784.7 51,971.1 2009 5,417 31,593 20,815 57,826 Projected Financials 2010 2011 6,032 7,425 36,166 45,546 23,837 30,028 66,035 82,999 2012 8,770 55,380 36,415 100,565
9,564 2,000 5,600 Rs.57,932.6
11,478 2,000 6,735 Rs.66,997.7
12,389 2,000 8,353 Rs.74,713.1
13,855 2,487 8,574 82,742
15,822 2,840 9,791 94,488
19,887 3,569 12,307 118,762
24,096 4,325 14,911 143,897
(9,044) (8,403) (8,843) (1,200) 30,442 (21,400) 9,042 (3,190) 939 6,791 (2,377) 4,414 7.6%
(9,768) (8,874) (9,506) (1,380) 37,470 (22,400) 15,070 (3,085) 939 12,924 (4,523) 8,400 12.5%
(10,549) (9,282) (10,267) (1,587) 43,028 (23,352) 19,676 (3,020) 939 17,595 (6,158) 11,437 15.3%
(12,213) (9,961) (11,913) (1,675) 46,980 (23,506) 23,474 (2,615) 1,379 22,238 (7,651) 14,587 17.6% 4.0%
(13,947) (10,739) (13,605) (1,881) 54,316 (25,455) 28,861 (2,260) 1,133 27,734 (9,660) 18,074 19.1% 4.0%
(17,530) (11,535) (17,100) (2,268) 70,330 (27,451) 42,879 (1,865) 743 41,757 (14,705) 27,052 22.8% 4.0%
(21,240) (12,349) (20,719) (2,668) 86,922 (29,490) 57,432 (1,440) 629 56,621 (19,947) 36,674 25.5% 4.0%
71
Table of Contents
72
Introduction to Valuation
Investors employ several valuation methodologies when considering an investment proposal some examples are as follows
Comparable Company Analysis Comparable Transactions Analysis Transaction Premiums Analysis Discounted Cash Flow Analysis Returns Analysis based on Exit Multiples
Discussion of each method is beyond the scope of this training module Assume SAS Capital has employed the above methodologies and based on results they have determined that a 7.7% premium over existing stock price should be an acceptable to Thebes Airport Now we are going to determine if such a valuation is consistent with SAS Capitals expectation on their target Internal Rate of Return or IRR
IRR is the discount rate which makes the Net Present Value of a project 0
73
Returns Analysis Set Up
Set up a returns analysis schedule in a manner which indicates achievable returns based on exit year and exit Enterprise Value / EBITDA multiple To arrive at Equity Value from Enterprise Value, subtract existing debt balance and add back Cash balance
Returns Analysis
(Pak Rupees in 000s, except per share amounts) EBITDA Exit EBITDA Multiple Enterprise Value Less: Secured Debt Less: Unsecured Debt Plus: Cash Total Equity Value Sponsor's Ownership as a % SAS Equity Dividend's received by SAS SAS Returns IRR Initial Inv (30,000.0) (30,000.0) (30,000.0) (30,000.0) 2009 0.0 0.0 0.0 0.0 2010 0.0 0.0 0.0 2011 2012 Projected Financials 2009 2010 2011 Requires Earnings from the Income Statement Assumtion based on Comparative Analysis 2012
Requires Debt & Int. Schedule Requires Debt & Int. Schedule Requires Balance Sheet figure Requires Valuation Consideration Schedule
Requires Shareholders' Equity Schedule
0.0 0.0
0.0
74
Returns Analysis
We have determined that a 7.3x exit EBITDA multiple is reasonable based on comparables analysis Based on SAS offer of Rs 2.8 share they are entitled to 9.6% of Thebes Airport An exit in 2012 at 7.3x EBITDA allows SAS to barely achieve their desired IRR However, as Buy-Side advisors we must evaluate all possibilities and scenarios before making a recommendation
Returns Analysis
(Pak Rupees in 000s, except per share amounts) EBITDA Exit EBITDA Multiple Enterprise Value Less: Secured Debt Less: Unsecured Debt Plus: Cash Total Equity Value Sponsor's Ownership as a % SAS Equity Dividend's received by SAS SAS Returns IRR 14.1% 13.9% 19.0% 20.7% Initial Inv (30,000.0) (30,000.0) (30,000.0) (30,000.0) 2009 34,244.7 319.1 319.1 319.1 2010 38,562.3 389.9 389.9 2011 2012 2009 46,979.9 7.3 342,953 (18,000) (7,000) 34,514 352,467 9.6% 33,926 319 38,172 390 49,014 588 61,118 803 Projected Financials 2010 2011 54,316.2 70,329.8 7.3 7.3 396,508 513,408 (16,000) (6,000) 22,081 396,589 (14,000) (5,000) 14,822 509,230 2012 86,922.0 7.3 634,531 (12,000) (4,000) 16,449 634,980
49,602.7 588.4
61,920.8
75
Table of Contents
76
Control Page and Sensitivity Analysis

The final step of any useful financial model is creating a control page which drives the output similar to the Operating Model control page we have already set up The control page provides a birds eye view of any given situation and involves re-linking some inputs Major drivers which would be of interest in the airport example are:
Revenue Driver Inflation Rates Aircraft Movements LF Assumptions IRR Implications
Financial statement line items which should typically be shown on a control page are:
Revenue EBITDA Net Income Cash Balance
77
Control Page and Sensitivity Analysis Set Up

Once inputs and drivers are re-linked to the Control Page we can perform a comprehensive evaluation of the impact a variable can have
Control Page
Aircraft Specifications B-737-300 A-320 A310 B747 Aircraft Traffic Forecast Aircraft Movements B-737-300 A-320 A310 B747 Key Financials 2006 Revenue EBITDA Net Income Cash and Equivalents 1) To be copied from Valuation Consideration 2) Valuation Consideration to be relinked to Control Page Investment Amount offered by SAS Capital Offer price / share Current Stock Price Premium Paid by SAS Capital Partners Additional Shares Issued Current Shares Outstanding Common shares outstanding post investment Revenue Driver Inflation Assumptions Operating Revenue: Assumption: 1) Text to be copied from the Operating Model Landing Charges / Ton Annually - Fixed 2) Operating Model to be relinked to the Contol Page Handling Charges / AC Movement Annually - Fixed Emarkation Fees / Passenger Annually - Fixed 2006 2007 2008 2009 2010 2011 # of Seats LF Assump. MTOW (Tons) Rate: Operating Model Operating Model Operating Model 2012
1) Text to be copied from the Operating Model 2) Operating Model to be relinked to the Contol Page
Historical Financials 2007
Projected Financials 2008 2009 2010 2011 To be linked to the Income Statement To be linked to the Income Statement To be linked to the Income Statement To be linked to the Balance Sheet
2012
Exit EBITDA Multiple Sponsor's Ownership a % IRR Initial Inv
1) Copy from Returns Analysis. 2) Returns Analysis to be relinked to Control Page
To be linked to Valuation Consideration Schedule 2009 2010 2011 2012
To be linked to the Valuation Consideration To be linked to the Valuation Consideration To be linked to the Valuation Consideration
78
Control Page and Sensitivity Analysis

We can see that an exit in 2012 allows SAS to barely achieve their target IRR As Buy-Side advisor, would you recommend that SAS invest in Thebes Airport?
Aircraft Specifications B-737-300 A-320 A310 B747 Aircraft Traffic Forecast Aircraft Movements B-737-300 A-320 A310 B747 Key Financials Revenue EBITDA Net Income Cash and Equivalents
# of Seats 118 140 184 398 2006 154 130 65 45
LF Assump. MTOW (Tons) 0.5% Annually 61 0.8% Annually 73 0.0% Annually 160 -0.3% Annually 350 2007 160 156 80 40 2008 176 160 94 37
Revenue Driver Inflation Assumptions Operating Revenue: Assumption: Landing Charges / Ton Annually - Fixed Handling Charges / AC Movement Annually - Fixed Emarkation Fees / Passenger Annually - Fixed 2009 179 164 100 35 2010 188 174 105 35 2011 213 197 135 35
Rate: 7% 9% 9% 2012 243 213 156 35
2006 57,932.6 30,442 4,414 10,430
Historical Financials 2007 2008 66,997.7 74,713.1 37,470 43,028 8,400 11,437 14,028 19,970
2009 82,742.0 46,980 14,591 34,563
Projected Financials 2010 2011 94,488.0 118,762.1 54,316 70,330 18,078 27,056 22,308 15,037
2012 143,897.3 86,922 36,675 16,456
Investment Amount offered by SAS Capital Offer price / share Current Stock Price Premium Paid by SAS Capital Partners Additional Shares Issued Current Shares Outstanding Common shares outstanding post investment
30,000 Rs. 2.8 Rs. 2.6 7.7% 10,714 100,601 111,315
Exit EBITDA Multiple Sponsor's Ownership a % IRR 14.1% 13.9% 19.0% 20.8% Initial Inv (30,000.0) (30,000.0) (30,000.0) (30,000.0)
7.3 9.6% 2009 34,244.9 314.5 314.5 314.5
7.3
7.3
7.3
2010 38,591.5 397.2 397.2
2011
2012
49,639.5 604.6
61,938.7
79

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Sample Financial Modeling Module A

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Financial Modeling Module I Fall 2010

About The Kadmos Initiative Pvt Ltd.

What is a Financial Model?

Model integrity based on assumptions

Assumptions must be reasonable and defensible

Well formatted and easy to follow models ensure quality control

Spreadsheet Set Up Example

Excel Best Practices

Excel Best Practices

Excel Best Practices

10.Customize your tool bar in a manner which suits you

Commonly Used Shortcut Keys

Commonly Used Functions

Your work represents you (and your firm)

Customizing Number Formats

Core Statements Income Statement

Core Statements Balance Sheet

Core Statements Cash Flow Statement

Kadmos Modeling Framework

Thebes Airport: Overview

Thebes Airport: Financial Statements

Historical Financials 2007 4,603 25,179 17,003 46,785

2008 19,970 14,884 5,500 11,017 51,370

9,564 2,000 5,600 Rs.57,933

11,478 2,000 6,735 Rs.66,998

12,389 2,000 8,353 Rs.74,713

540,800 27,466 (213,406) Rs.406,230

(9,044) (8,403) (8,843) (1,200) 30,442

(9,768) (8,874) (9,506) (1,380) 37,470

(10,549) (9,282) (10,267) (1,587) 43,028

2,476 2,467 4,943 24,000 10,000 34,000 10,123 49,066

2,426 2,418 4,844 22,000 9,000 31,000 9,921 45,765

2,378 2,369 4,747 20,000 8,000 28,000 9,722 42,469

Depreciation & Amortization EBIT

Interest Expense Interest Income EBT

(3,190) 939 6,791

(3,085) 939 12,924

(3,020) 939 17,595

Taxes @ 35% Net Income Net Income Margin

(2,377) Rs.4,414 7.6%

(4,523) Rs.8,400 12.5%

(6,158) Rs.11,437 15.3%

11,717 346,704 Rs.395,770

18,208 354,200 Rs.399,965

26,761 363,761 Rs.406,230

Thebes Airport: Capital Structure

Enterprise Value = Market Capitalization + Total Debt - Cash

Capital Structure as of 05/04/2009

SAS Capital Partners: Situation Overview

Investment holding period for SAS is 4-6 years

What is an Operating Model?

A due diligence tool for investors seeking to establish viability of a business

Airport Economics: Revenue Forecasting

Airport Economics: Revenue

What are landing fees and how can they be projected?

What are handling fees and how can they be projected?

What are embarkation fees and how can they be projected?

Airport Economics: Operating Costs

How are operating costs projected?

Airport Economics: Operating Model Set Up

Airport Economics: Operating Model Set Up

Step 1: Set up the operating model as shown

Projected 2008 2009 2010 2011 2012