Financial Analysis & Forecasting

Purpose of Spreadsheet:

Prepared by Sumit Kumar Jain CA,CS,B.com(Hons.)
Revised: 11/22/2002
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To illustrate concepts related to financial analysis and forecasting. The financial analysis uses a combination of ratios and industry averages to evaluate the financial performance of the company. Trend line graphs are also generated, comparing the company's performance with the industry averages. Finally, the historical information is used to prepare a set of pro forma financial statements using both linear and non-linear functions. Required Inputs: You will need to collect financial statements for several reporting periods. If you want to benchmark the performance against the industry, then you will also need to collect industry averages. The spreadsheet is setup to capture five reporting periods (annual, quarterly, monthly). All input fields are highlighted in yellow. For best results, SEC Filings are suggested since these reports provide more detail than published financial statements. Note: A small red triangle in the upper right corner of a cell indicates that a comment has been inserted. Point your mouse over the cell and the comment will appear. If a cell appears in red, this indicates a warning concerning a calculation. Worksheets: This spreadsheet consists of the following worksheets, divided into three sections: A) Input Worksheets for financial analysis using historical data: Worksheet 2 3 4 5 Title General Input Balance Sheet Income Statement Cash Flow Statement

Purpose Enter general information here - used on several worksheets. Enter comparative balances sheets for up to five periods. Enter comparative income statements for up to five periods. Enter comparative cash flow statements for up to five periods.

Caution: If you enter less than five years of historical information, certain worksheet formulas may have to be revised. B) Output Worksheets for evaluating financial performance: 6 Key Financial Data Calculates key financial information for further analysis. 7 Ratio Analysis Calculates a series of ratios for further analysis. 8 Benchmark Analysis Compare ratio analysis to industry averages. 9 Horizontal Analysis Horizontal analysis with corresponding trend lines. 10 Vertical Analysis Common size financials in percentages and graphs. C) Pro Forma / Forecasted Financials for Budgeting: 11 Pro Forma - Simple Set of pro forma financials using simple assumptions

12 13 14 15 16

Pro Forma - Regression Pro Forma - Exponential Scenario Analysis Budget Analysis Final Budgets

Set of pro forma financials using linear trending Set of pro forma financials using exponential smoothing Example of Scenario Analysis and Goal Seek Analysis Preliminary budget analysis Set of budgets per various assumptions and forecasts.

Note: Some additional worksheets (Answer Reports 1 & 2) may appear in the spreadsheet due to the running of Solver. Macros: No macros have been used in this spreadsheet to give everyone some assurance that no viruses are contained in the spreadsheet. However, you are free to add your own macros to save time. Tools > Macro > Record New Macro Excel Functions: This spreadsheet uses certain financial functions (such as =TREND) which might not be found in your version of Microsoft Excel. To take full advantage of financial and statistical functions, you should install the Add On package titled: Analysis TookPak. Go to the main tool bar, select Tools => Add-Ins => check the Analysis TookPak option, insert your Excel CD and install the Analysis ToolPak. Also, you might want to install the Solver Add-in since this is useful for solving special forecasting issues (such as finding the optimal exponential factor). Compatibility: This spreadsheet was created with Microsoft Excel 2000. Older versions of Excel (such as 97) may not be compatible with this spreadsheet. Corrections: With any “attempt” to build an Excel Model, I can easily make some mistakes. So if you have suggestions to make the model better, drop me an email and I’ll be glad to improve the financial model. My email address is: matt@exinfm.com

CA,CS,B.com(Hons.)
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sed on several worksheets. s for up to five periods. ents for up to five periods. ments for up to five periods. certain worksheet

n for further analysis. ther analysis.

ding trend lines. ages and graphs.

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near trending xponential smoothing Goal Seek Analysis

ptions and forecasts.

General Input Panel
The following general information should be entered: Note: Sample data has been entered in the input cells to help you get started. 2-1 2-2 2-3 Name of Company => XYZ Ltd Reporting Periods => Annual (Annual, Semi-annual, Quarterly or Monthly) 365

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Number of Days in Reporting Period are What reporting periods will be entered?

2-4 2-5 2-6 2-7 2-8 2-9

Most Current Period Previous Period 2nd Previous Period 3rd Previous Period 4th Previous Period

2008 (1999, July 1998, 6/30/97, etc.) 2007 (1999, July 1998, 6/30/97, etc.) 2006 (1999, July 1998, 6/30/97, etc.) 2005 (1999, July 1998, 6/30/97, etc.) 2004 (1999, July 1998, 6/30/97, etc.) 5

Number of historical periods to be analyzed

How are the amounts expressed in the financial statements? (such as: in millions of dollars, thousands of Canadian dollars, etc.) 2-10 millions of Rs.

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Balance Sheet for XYZ Ltd
Annual Period 2004 990 10 1,020 1,005 870 3,895 14,006 (1,280) 12,726 360 65 100 13,251 17,146 2,050 1,200 12 1,050 4,312 1,160 650 1,810 6,122 Annual Period 2005 950 15 1,550 1,360 1,150 5,025 17,605 (1,700) 15,905 320 0 110 16,335 21,360 3,150 1,830 15 1,250 6,245 1,750 750 2,500 8,745 millions of Rs. Annual Period 2006 901 12 1,830 1,650 1,370 5,763 21,826 (2,100) 19,726 120 0 105 19,951 25,714 3,290 2,580 25 1,480 7,375 2,600 701 3,301 10,676 Annual Period 2007 998 6 2,250 1,900 1,650 6,804 26,950 (2,550) 24,400 590 250 135 25,375 32,179 3,870 3,100 30 1,590 8,590 3,600 890 4,490 13,080 Annual Period 2008 870 11 3,040 2,060 1,530 7,511 28,100 (3,010) 25,090 905 412 195 26,602 34,113 4,800 3,550 36 1,301 9,687 3,950 995 4,945 14,632

Description Cash and Cash Equivalents Short Term Marketable Securities Accounts Receivable Inventory Other Current Assets Total Current Assets Fixed Assets Accumulated Depreciation Net Fixed Assets Longterm Investments Investments in Other Companies Intangibles and Other Assets Total Non Current Assets Total Assets Accounts Payable Short Term Borrowings Short Term Portion of LT Debt Other Current Liabilities Total Current Liabilities Longterm Debt / Borrowings Other Longterm Liabilities Total Non Current Liabilities Total Liabilities

Prepared by Matt H. Evans 10/12/2009

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Balance Sheet for XYZ Ltd
Annual Period 2004 0 2,044 5,013 5,097 275 (1,405) 11,024 17,146 0 Balances Annual Period 2005 0 2,005 4,900 7,050 120 (1,460) 12,615 21,360 0 Balances millions of Rs. Annual Period 2006 0 2,069 5,159 9,840 (550) (1,480) 15,038 25,714 0 Balances Annual Period 2007 0 2,090 5,626 15,050 (2,147) (1,520) 19,099 32,179 0 Balances Annual Period 2008 0 2,120 5,628 20,005 (6,722) (1,550) 19,481 34,113 0 Balances

Description Preferred Equity Common Equity Additional Paid in Capital Retained Earnings Adj for Foreign Currency Transl Treasury Stock Total Shareholder Equity Total Liabilities & Equity Check: Assets = Liab + Equity ? Comment =>

NonDepreciable Fixed Assets Deferred Taxes Goodwill Write Off No of Common Shares o/s Par Value of Common Stock No of Preferred Shares o/s Par Value of Preferred Stock Market Price of Common Stock Market Price of Preferred Stock Preferred Dividends in Arrears Liquidating value of Preferred Stk Book Value per Share Dividends per Common Share

0 112 0 1,320 $10.00 0 $22.65 $0.00 0 0 $8.35 $1.01

0 101 0 1,290 $10.00 0 $28.90 $0.00 0 0 $9.78 $1.49

0 90 0 1,302 $10.00 0 $37.05 $0.00 0 0 $11.55 $1.89

0 98 0 1,345 $10.00 0 $33.60 $0.00 0 0 $14.20 $1.75

0 109 0 1,322 $10.00 0 $29.40 $0.00 0 0 $14.74 $1.76

Prepared by Matt H. Evans 10/12/2009

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Balance Sheet for XYZ Ltd
Annual Period 2004 45.47% 0 1,330 1,330 Annual Period 2005 38.61% 0 1,918 1,918 millions of Rs. Annual Period 2006 39.44% 0 2,461 2,461 Annual Period 2007 29.76% 0 2,354 2,354 Annual Period 2008 30.24% 0 2,329 2,329

Description Dividend Payout Ratio Cash Dividends to Preferred Stock Cash Dividends to Common Stock Total Dividends Paid

Prepared by Matt H. Evans 10/12/2009

Page 9

Income Statement for XYZ Ltd
Annual Period 2004 12,060 16 12,076 (4,950) (11) (4,961) (3,300) 3,815 (117) 0 0 0 (790) 0 2,908 0 0 17 2,925 $2.22 3,832 (310) 0 (16) 4 Annual Period 2005 16,700 19 16,719 (7,050) (13) (7,063) (3,880) 5,776 (122) 0 0 17 (1,005) 0 4,666 0 0 302 4,968 $3.85 6,095 (420) 0 (19) 6 millions of Rs. Annual Period 2006 21,170 26 21,196 (8,233) (17) (8,250) (4,637) 8,309 (216) 0 (22) 0 (2,050) 0 6,021 0 0 219 6,240 $4.79 8,506 (400) 0 (33) 11 Annual Period 2007 24,700 37 24,737 (9,050) (22) (9,072) (5,670) 9,995 (282) 0 0 0 (2,105) 0 7,608 0 0 303 7,911 $5.88 10,298 (450) 0 (39) 19 Annual Period 2008 27,400 48 27,448 (10,150) (28) (10,178) (7,120) 10,150 (304) 0 0 0 (2,660) 0 7,186 0 0 515 7,701 $5.83 10,665 (460) 0 (30) 27

Description Net Sales Other Operating Revenues Total Revenues Cost of Goods Sold Other Operating Expenses Total Direct Expenses Selling, General & Administrative Operating Income Interest Expenses Foreign Exchange (Loss) Gain Associated Company (Loss) Gain Other NonOperating (Loss) Gain Income Tax Expense Reserve Charges Income Before Extra Ord Items Extra Ordinary Items (Loss) Gain Tax Effects of Extraordinary Items Minority Interests Net Income Primary EPS Earnings Before Int & Taxes Depreciation & Amortization Research & Devel Expenses Capitalized Interest Expense Interest Income

Prepared by Matt H. Evans 10/12/2009

Page 10

Income Statement for XYZ Ltd
Annual Period 2004 (907) 17 21.36% Annual Period 2005 (1,110) 302 17.78% millions of Rs. Annual Period 2006 (2,288) 219 25.33% Annual Period 2007 (2,387) 303 21.67% Annual Period 2008 (2,964) 515 27.02%

Description Total Non Operating Expenses Total Extra Ordinary Items Tax Rate

Prepared by Matt H. Evans 10/12/2009

Page 11

Cash Flow Statement for XYZ Ltd
Annual Period 2004 2,925 310 (2) (55) (162) 206 3,222 (1,455) (135) 112 (712) 162 33 (1,995) 1,070 (1,112) (1,330) 5 195 0 (75) (1,247) (20) Annual Period 2005 4,968 420 11 0 (1,130) 1,933 6,202 (2,750) 0 35 (1,979) 129 (166) (4,731) 1,044 (650) (1,918) 12 1 0 0 (1,511) (40) millions of Rs. Annual Period 2006 6,240 400 11 45 (738) 1,130 7,088 (3,880) 0 0 (1,801) 330 61 (5,290) 1,460 (898) (2,461) 7 45 0 0 (1,847) (49) Annual Period 2007 7,911 450 (8) 0 (1,041) 1,215 8,527 (5,220) 0 150 (2,314) 221 (12) (7,175) 1,880 (801) (2,354) 7 13 0 0 (1,255) 97 Annual Period 2008 7,701 460 (11) 0 (707) 1,097 8,540 (4,108) 0 182 (2,609) 50 0 (6,485) 1,105 (961) (2,329) 8 6 0 (12) (2,183) (128)

Description Net Income Depreciation and Amortization (Increase) Decrease Defer Taxes (Gain) Loss on Sale of Assets (Increase) Decrease Current Assets Increase (Decrease) Current Liab Cash Flow from Operations Capital Expenditures Acquisition in Other Co's Proceeds from Sales of Assets Purchases of Investments Sale of Investments Other Investment Activities Cash Provided (Used) from Investmts Proceeds from Borrowings Payments on Borrowings Dividends Paid to Shareholders Proceeds from Minority Interest Issue Stock / Exercise Options Purchase / Retire Common Stock Other Financing Activities Cash Provided (Used) from Financing Increase (Decrease) to Cash

Prepared by Matt H. Evans 10/12/2009

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Cash Flow Statement for XYZ Ltd
Annual Period 2004 1,010 990 0 Balances Annual Period 2005 990 950 0 Balances millions of Rs. Annual Period 2006 950 901 0 Balances Annual Period 2007 901 998 0 Balances Annual Period 2008 998 870 0 Balances

Description Beginning Cash Balance Ending Cash Balance Check: Should agree to Balance Sheet Comment =>

Prepared by Matt H. Evans 10/12/2009

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Key Financial Data for XYZ Ltd
Annual Period 2004 2,908 117 16 790 0 310 4,141 34% Annual Period 2005 4,666 122 19 1,005 0 420 6,232 37% millions of Rs. Annual Period 2006 6,021 216 33 2,050 0 400 8,720 41% Annual Period 2007 7,608 282 39 2,105 0 450 10,484 42% Annual Period 2008 7,186 304 30 2,660 0 460 10,640 39%

Description EBITDA : Income before ExtraOrd Items Interest Expense Capitalized Interest Expense Income Tax Expense Reserve Charges Depreciation and Amortization EBITDA EBITDA Margin Free Cash Flow: Operating Cash Flow Investment Cash Flows Preferred Dividends Paid (fixed) Redemption of Fixed Obligations Other Critical Outlays Free Cash Flow Working Capital: Current Assets Current Liabilities Working Capital Liquid Capital: Cash and Cash Equivalents Marketable Securities Accounts Receivable Notes Receivable Total Current Liabilities Long Term Debt Preferred Equity Liquid Capital

3,222 (1,995) 0 (1,112) (35) 80

6,202 (4,731) 0 (650) (45) 776

7,088 (5,290) 0 (898) (42) 858

8,527 (7,175) 0 (801) (30) 521

8,540 (6,485) 0 (961) (25) 1,069

3,895 4,312 (417)

5,025 6,245 (1,220)

5,763 7,375 (1,612)

6,804 8,590 (1,786)

7,511 9,687 (2,176)

990 10 1,020 0 (4,312) (1,160) 0 (3,452)

950 15 1,550 0 (6,245) (1,750) 0 (5,480)

901 12 1,830 0 (7,375) (2,600) 0 (7,232)

998 6 2,250 0 (8,590) (3,600) 0 (8,936)

870 11 3,040 0 (9,687) (3,950) 0 (9,716)

The following valuation indicators are very simple and basic; they are used as quick, rough estmates. Market Capitalization: Market Cap - Common Stk Market Cap - Preferred Stk Total Market Capitalization Present Value: Normalized Cash Flow Weight %'s

$29,898 $0.00 $29,898

$37,281 $0.00 $37,281

$48,239 $0.00 $48,239

$45,192 $0.00 $45,192

$38,867 $0.00 $38,867

5.00%

10.00%

15.00%

30.00%

40.00%

Key Financial Data for XYZ Ltd
Annual Period 2004 Annual Period 2005 millions of Rs. Annual Period 2006 Annual Period 2007 Annual Period 2008 794 15 11.00% $5,711 $65,836 $71,547

Description Normalized Cash Flow Number of Future Periods Required Rate of Return Present Value of Free Cash Flow Present Value of Selling Price Present Value of Business Revenue Multiplier: Recent Gross Revenues Average Competitive Rev Multiplier Value based on Revenue Multiple Capitalization of Earnings: Normalized Net Income Weights % Normalized Net Income Capitalization Rate Nominal Growth Rate Net Capitalization Rate Value based on Earnings

$315,000 <= estimated selling price

27,448 3.14 $86,187

5.00%

5.00%

25.00%

30.00%

35.00% 6,681 12.00% 3.50% 8.50% $78,605

Operating Leverage Financial Leverage Total Leverage Check Totals 0.00

1.31 1.46 1.92 1.92

1.49 0.61 0.91 0.91

1.21 1.12 1.36 1.36

0.14 (0.65) (0.09) (0.09)

Ratio Analysis for XYZ Ltd
Annual Period 2004 0.47 0.90 1.10 Annual Period 2005 0.40 0.80 1.25 Annual Period 2006 0.37 0.78 1.14 Annual Period 2007 0.38 0.79 1.08 Annual Period 2008 0.40 0.78 1.11

Title of Ratio Acid Test Ratio Current Ratio Operating Cash Flow to Net Income Liquidity Index: Cash - Days Removed Cash Balance Cash Balance Total Marketable Sec - Days Removed Marketable Securities Balance Marketable Securities Total Receivables - Days Removed Receivable Balance Receivable Balance Total Inventory - Days Removed Inventory Balance Inventory Balance Total Other - Days Removed Other Current Assets Balance Other Current Assets Total Liquidity Index (Days) Z Score: 1.2 x (working capital / total assets) 1.4 x (retained earn / total assets) 3.3 x (EBIT / total assets) .6 x (market value equity / b.v. debt) .999 x (sales / total assets) Z Score

0 990 0 11 10 110 34 1,020 34,257 79 1,005 79,745 16 870 13,920 33

0 950 0 12 15 180 30 1,550 46,158 61 1,360 83,261 22 1,150 25,300 31

0 901 0 16 12 192 31 1,830 56,217 67 1,650 110,092 26 1,370 35,620 35

0 998 0 15 6 90 32 2,250 72,213 72 1,900 136,018 21 1,650 34,650 36

0 870 0 14 11 154 36 3,040 110,751 71 2,060 146,676 19 1,530 29,070 38

(0.03) 0.42 0.74 15.46 0.70 17.29

(0.07) 0.46 0.94 12.78 0.78 14.90

(0.08) 0.54 1.09 11.13 0.82 13.51

(0.07) 0.65 1.06 7.53 0.77 9.94

(0.08) 0.82 1.03 5.90 0.80 8.48

Receivable Turnover: Credit Sales Average Receivable Balance Receivable Turnover Days Required to Collect A/R

11,520 1,060 10.9 34

15,750 1,285 12.3 30

20,080 1,690 11.9 31

23,200 2,040 11.4 32

26,500 2,645 10.0 36

Inventory Turnover: Average Inventory Balance Inventory Turnover Days in Inventory Total Asset Turnover

1,046 4.6 79 0.7

1,183 6.0 61 0.8

1,505 5.5 67 0.8

1,775 5.1 72 0.8

1,980 5.1 71 0.8

Ratio Analysis for XYZ Ltd
Annual Period 2004 0.97 Annual Period 2005 0.98 Annual Period 2006 0.99 Annual Period 2007 0.97 Annual Period 2008 0.96

Title of Ratio Operating Assets Ratio

Gross Profit Margin Operating Margin Net Profit Margin Direct Cost to Operating Revenues Capitalization Rate / Asset Return: Net Operating Income Total Investments / Operating Assets Capitalization Rate / Return Return on Shareholder Equity

59% 32% 24% 41%

58% 35% 30% 42%

61% 39% 29% 39%

63% 40% 32% 37%

63% 37% 28% 37%

3,000 16,621 18.05% 24%

4,749 20,930 22.69% 33%

6,204 25,489 24.34% 35%

7,829 31,204 25.09% 33%

7,408 32,601 22.72% 26%

Debt to Total Assets Debt to Common Equity Times Interest Earned

0.36 0.50 33

0.41 0.63 50

0.42 0.63 39

0.41 0.57 37

0.43 0.53 35

Price to Earnings (P/E) Price to Book Value Stock Yield

10.2 2.7 4.45%

7.5 3.0 5.14%

7.7 3.2 5.10%

5.7 2.4 5.21%

5.0 2.0 5.99%

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Benchmark Analysis for XYZ Ltd
You need to collect benchmark data on the respective industry for the subject company. Enter the benchmark data in the appropriate input cells. This information is used to generate trend line graphs in this worksheet. If you do not have any benchmark data, then fill in the highlighted yellow cell with numeric zero "0". The "industry" line will be null in the graph and show only the company specific ratio trend.

Ref 8-1 7-1 8-2 7-2 8-3 7-21 8-4 7-22 8-5 7-25 8-6 7-26 8-7 7-27 8-8 7-29 8-10 7-31 8-11 8-12 8-13 8-14 8-15 7-38

Description Acid Test Ratio - Industry Acid Test Ratio - Company Current Ratio - Industry Current Ratio - Company Receivable Turnover - Industry Receivable Turnover - Company Days to Collect A/R - Industry Days to Collect A/R - Company Inventory Turnover - Industry Inventory Turnover - Company Days in Inventory - Industry Days in Inventory - Company Asset Turnover - Industry Asset Turnover - Company Gross Profit Margin - Industry Gross Profit Margin - Company Net Profit Margin - Industry Net Profit Margin - Company Return on Total Assets - Industry Return on Total Assets - Company Return on Equity - Industry Return on Equity - Company Debt to Equity - Industry Debt to Equity - Company

Annual Period 2004 0.51 0.47 1.12 0.90 8.50 10.87 41 34 4.40 4.60 86 79 1.60 0.70 55.00% 58.96% 20.00% 24.22% 38.00% 30.00% 26.00% 23.93% 35% 50%

Annual Period 2005 0.52 0.40 1.10 0.80 8.70 12.26 39 30 4.45 5.96 88 61 1.55 0.78 52.00% 57.78% 23.00% 29.71% 36.00% 25.80% 22.00% 33.44% 38% 63%

Annual Period 2006 0.50 0.37 1.05 0.78 8.40 11.88 40 31 4.20 5.47 81 67 1.62 0.82 60.00% 61.11% 22.00% 29.44% 37.00% 26.51% 24.00% 35.28% 31% 63%

8-16 7-39

Times Interest Earned - Industry Times Interest Earned - Company

40 33

38 50

36 39

4-13 8-17 8-18 8-19 8-20

We added the following two ratios to assess if the Company has excessive growth: Provision for Taxes (790) (1,005) (2,050) Trading Ratio - Company 1.24 1.37 1.52 Trading Ratio - Industry 1.26 1.28 1.31 Net Sales to Net Worth - Company Net Sales to Net Worth - Industry 1.18 1.22 1.44 1.20 1.63 1.19

Source for Benchmark Data: Almanac of Business and Industrial Financial Ratios by Leo Troy, Prentice Ha Graphs appear below for each of the above comparisons:

Acid Ratio Comparison
0.60 0.50 0.40 Acid Test Ratio - Industry Acid Test Ratio - Company

Ratio

0.30 0.20 0.10 0.00 2004 2005 2006 Periods 2007 2008

Current Ratio Comparison
1.20 1.00 0.80 Current Ratio Industry Current Ratio Company

Ratio

0.60 0.40 0.20 0.00 2004 2005 2006 Periods 2007 2008

0.40 0.20 0.00 2004 2005 2006 Periods 2007 2008

Company

Receivable Turnover Comparison
14.00 12.00

Turnover Rate

10.00 8.00 6.00 4.00 2.00 0.00 2004 2005 2006 Periods 2007 2008

Receivable Turnover Industry Receivable Turnover Company

Receivable Collection Comparison
45 40 35 30 25 20 15 10 5 0 2004

Days to Collect A/R

Days A/R Days A/R -

to Collect Industry to Collect Company

2005

2006 Periods

2007

2008

Inventory Turnover Comparison
7.00 6.00

Turnover Rate

5.00 4.00 3.00 2.00 1.00 0.00 2004 2005 2006 2007 2008

Inventory Turnover Industry Inventory Turnover Company

6.00

Turnover Rate

5.00 4.00 3.00 2.00 1.00 0.00 2004 2005 2006 Periods 2007 2008

Inventory Turnover Industry Inventory Turnover Company

Inventory Days Comparison
100

Days Held in Inventory

80 60 40 20 0 2004 2005 2006 Periods 2007 2008

Days in Inventory Industry Days in Inventory Company

Asset Turnover Comparison
1.80 1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00 2004

Turnover Rate

Asset Turnover - Industry Asset Turnover - Company

2005

2006 Periods

2007

2008

Gross Profit Margin
70.00%

rofit Margin

60.00% 50.00% 40.00% 30.00% Gross Profit Margin Industry Gross Profit

Gross Profit Margin
70.00%

Gross Profit Margin

60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 2004 2005 2006 Periods 2007 2008 Gross Profit Margin Industry Gross Profit Margin Company

Net Profit Margin
35.00% 30.00%

Net Profit Margin

25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 2004 2005 2006 Periods 2007 2008

Net Profit Margin Industry Net Profit Margin Company

Return on Total Assets
40.00% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 2004

Return on Total Assets

Return on Total Assets Industry Return on Total Assets Company 2005 2006 2007 2008

Periods

10.00% 5.00% 0.00% 2004

Retur

Company 2005 2006 2007 2008

Periods

Return on Equity Comparison
40.00% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 2004

Return on Common Equity

Return on Total Assets Industry Return on Total Assets Company 2005 2006 2007 2008

Periods

Debt to Equity Comparison
70%

Debt to Equity Ratio

60% 50% 40% 30% 20% 10% 0% 2004 2005 2006 Periods 2007 2008 Debt to Equity - Industry Debt to Equity - Company

Times Interest Earned
60

Times Interest Earned

50 40 30 20 10 0 2004 2005 2006 Periods 2007 2008 Times Interest Earned Industry Times Interest Earned Company

Times Interest Ear

40 30 20 10 0 2004 2005 2006 Periods 2007 2008

Times Interest Earned Industry Times Interest Earned Company

Trading Ratio Comparison
3.00 2.50 2.00 Trading Ratio Industry Trading Ratio Company

Ratio

1.50 1.00 0.50 0.00 2004 2005 2006 Periods 2007 2008

Sales to Worth Comparison
3.00 2.50 2.00 Net Sales to Net Worth Industry Net Sales to Net Worth Company

Ratio

1.50 1.00 0.50 0.00 2004 2005 2006 Periods 2007 2008

ubject company.

nchmark data, y" line will be null

Annual Period 2007 0.49 0.38 1.08 0.79 8.20 11.37 41 32 4.30 5.10 89 72 1.68 0.77 62.00% 63.36% 19.00% 31.98% 34.00% 27.33% 19.00% 33.42% 34% 57%

Annual Period 2008 0.48 0.40 1.07 0.78 8.30 10.02 41 36 4.38 5.13 82 71 1.69 0.80 63.00% 62.96% 20.00% 28.06% 36.00% 23.23% 20.00% 25.89% 32% 53%

39 37

43 35

(2,105) 1.44 1.30 1.45 1.22

(2,660) 1.49 1.27 1.63 1.20

cial Ratios by Leo Troy, Prentice Hall

Acid Test Ratio - Industry Acid Test Ratio - Company

n

Current Ratio Industry Current Ratio Company

Company

son

Receivable Turnover Industry Receivable Turnover Company

ison

Days A/R Days A/R -

to Collect Industry to Collect Company

son

Inventory Turnover Industry Inventory Turnover Company

8

Inventory Turnover Industry Inventory Turnover Company

8

n

Days in Inventory Industry Days in Inventory Company

8

n

Asset Turnover - Industry Asset Turnover - Company

Gross Profit Margin Industry Gross Profit

Gross Profit Margin Industry Gross Profit Margin Company

Net Profit Margin Industry Net Profit Margin Company

08

Return on Total Assets Industry Return on Total Assets Company

Company

on

Return on Total Assets Industry Return on Total Assets Company

n

Debt to Equity - Industry Debt to Equity - Company

Times Interest Earned Industry Times Interest Earned Company

Times Interest Earned Industry Times Interest Earned Company

Trading Ratio Industry Trading Ratio Company

n

Net Sales to Net Worth Industry Net Sales to Net Worth Company

Horizontal Analysis for XYZ Ltd
Horizontal Analysis expresses change between periods as percentages for each account in the financial statements. The basic formula for horizontal analysis is: % change = (most recent period - previous period) / previous period Annual Period 2004 32.50% 29.00% 2.90% 16.50% 12.90% 3.80% 96.00% 33.50% 32.60% Annual Period 2005 38.47% 42.42% -1.99% 4.27% 27.22% 22.38% 1676.47% 69.85% 73.80% Annual Period 2006 26.77% 16.78% 5.76% 77.05% 103.98% 106.13% -27.48% 25.60% 24.45% Annual Period 2007 16.67% 9.92% 3.68% 30.56% 2.68% 4.33% 38.36% 26.78% 22.73% Annual Period 2008 10.93% 12.15% -0.64% 7.80% 26.37% 24.17% 69.97% -2.65% -0.96%

Description Growth in Net Sales Cost of Goods Sold Growth in Gross Profits Growth in Interest Expense Growth in Income Tax Expense Growth in Non Operating Expenses Growth in Minority Interest Growth in Net Income Growth in Earnings Per Share

Cash and Cash Equivalents Short Term Marketable Securities Accounts Receivable Inventory Other Current Assets Total Current Assets Net Fixed Assets Longterm Investments Investments in Other Companies Intangibles and Other Assets Total Non Current Assets Growth in Total Assets Accounts Payable Short Term Borrowings Short Term Portion of LT Debt Other Current Liabilities Total Current Liabilities

3.08% 12.00% 26.70% 19.90% 26.70% 21.50% 17.80% 6.20% 0.00% 16.50% 32.50% 1.05% 26.20% 33.50% 16.70% 12.80% 38.02%

-4.04% 50.00% 51.96% 35.32% 32.18% 29.01% 24.98% -11.11% -100.00% 10.00% 23.27% 24.58% 53.66% 52.50% 25.00% 19.05% 44.83%

-5.16% -20.00% 18.06% 21.32% 19.13% 14.69% 24.02% -62.50% #DIV/0! -4.55% 22.14% 20.38% 4.44% 40.98% 66.67% 18.40% 18.09%

10.77% -50.00% 22.95% 15.15% 20.44% 18.06% 23.69% 391.67% #DIV/0! 28.57% 27.19% 25.14% 17.63% 20.16% 20.00% 7.43% 16.47%

-12.83% 83.33% 35.11% 8.42% -7.27% 10.39% 2.83% 53.39% 64.80% 44.44% 4.84% 6.01% 24.03% 14.52% 20.00% -18.18% 12.77%

Longterm Debt / Borrowings Other Longterm Liabilities Total Non Current Liabilities Growth in Total Liabilities Preferred Equity Common Equity Additional Paid in Capital Retained Earnings Adj for Foreign Currency Transl Treasury Stock Growth in Total Equity (Net Worth) Sustainable Growth Rate #1 Sustainable Growth Rate #2 Growth in Market Capitalization

46.00% 11.30% 37.10% 31.05% 0.00% 2.60% 1.50% 38.00% -166.00% 2.01% 6.11% 13.05% 10.88% 14.50%

50.86% 15.38% 38.12% 42.85% #DIV/0! -1.91% -2.25% 38.32% -56.36% 3.91% 14.43% 20.53% 12.91% 24.69%

48.57% -6.53% 32.04% 22.08% #DIV/0! 3.19% 5.29% 39.57% -558.33% 1.37% 19.21% 21.36% 13.91% 29.39%

38.46% 26.96% 36.02% 22.52% #DIV/0! 1.01% 9.05% 52.95% 290.36% 2.70% 27.00% 23.47% 9.94% -6.32%

9.72% 11.80% 10.13% 11.87% #DIV/0! 1.44% 0.04% 32.92% 213.09% 1.97% 2.00% 18.06% 7.83% -14.00%

Vertical Analysis for XYZ Ltd
Vertical analysis expresses financial statements as percentages. On the Balance Sheet, Total Assets is assigned 100% and on the Income Statement, Total Revenues is assigned 100%.

Account Title Cash and Cash Equivalents Short Term Marketable Securities Accounts Receivable Inventory Other Current Assets Current Assets Net Fixed Assets Longterm Investments Investments in Other Companies Intangibles and Other Assets Non Current Assets Total Assets Accounts Payable Short Term Borrowings Short Term Portion of LT Debt Other Current Liabilities Total Current Liabilities Longterm Debt / Borrowings Other Longterm Liabilities Total NonCurrent Liabilities Total Liabilities Preferred Equity Common Equity Additional Paid in Capital Retained Earnings Adj for Foreign Currency Transl Treasury Stock Total Equity Total Liabilities & Equity

Annual Period 2004 5.77% 0.06% 5.95% 5.86% 5.07% 22.72% 74.22% 2.10% 0.38% 0.58% 77.28% 100.00% 11.96% 7.00% 0.07% 6.12% 25.15% 6.77% 3.79% 10.56% 35.71% 0.00% 11.92% 29.24% 29.73% 1.60% -8.19% 64.29% 100.00%

expressed in percentages Annual Annual Annual Period Period Period 2005 2006 2007 4.45% 0.07% 7.26% 6.37% 5.38% 23.53% 74.46% 1.50% 0.00% 0.51% 76.47% 100.00% 14.75% 8.57% 0.07% 5.85% 29.24% 8.19% 3.51% 11.70% 40.94% 0.00% 9.39% 22.94% 33.01% 0.56% -6.84% 59.06% 100.00% 3.50% 0.05% 7.12% 6.42% 5.33% 22.41% 76.71% 0.47% 0.00% 0.41% 77.59% 100.00% 12.79% 10.03% 0.10% 5.76% 28.68% 10.11% 2.73% 12.84% 41.52% 0.00% 8.05% 20.06% 38.27% -2.14% -5.76% 58.48% 100.00% 3.10% 0.02% 6.99% 5.90% 5.13% 21.14% 75.83% 1.83% 0.78% 0.42% 78.86% 100.00% 12.03% 9.63% 0.09% 4.94% 26.69% 11.19% 2.77% 13.95% 40.65% 0.00% 6.49% 17.48% 46.77% -6.67% -4.72% 59.35% 100.00%

Annual Period 2008 2.55% 0.03% 8.91% 6.04% 4.49% 22.02% 73.55% 2.65% 1.21% 0.57% 77.98% 100.00% 14.07% 10.41% 0.11% 3.81% 28.40% 11.58% 2.92% 14.50% 42.89% 0.00% 6.21% 16.50% 58.64% -19.71% -4.54% 57.11% 100.00%

Total Revenues Cost of Goods Sold Gross Profit Operating Expenses Non Operating Expenses Income Before Extra Ord Items Net Income

100.00% 40.99% 58.96% 27.42% 7.51% 24.08% 24.22%

100.00% 42.17% 57.78% 23.28% 6.64% 27.91% 29.71%

100.00% 38.84% 61.11% 21.96% 10.79% 28.41% 29.44%

100.00% 36.58% 63.36% 23.01% 9.65% 30.76% 31.98%

100.00% 36.98% 62.96% 26.04% 10.80% 26.18% 28.06%

Enter Your Forecast Periods => Pro Forma Income Statement Gross Revenues Growth Assumptions Cost of Goods Sold Growth Assumptions Operating Expenses Growth Assumptions NonOperating Expenses ExtraOrdinary Items Net Income

Annual Period 2001

Annual Period 2002

Annual Period 2003

Annual Period 2004

Annual Period 2005

30,742 12.00% (12,024) 39.11% (7,483) 24.34% (3,200) 650 8,685

34,431 12.00% (13,467) 39.11% (8,381) 24.34% (3,200) 650 10,033

38,562 12.00% (15,083) 39.11% (9,387) 24.34% (3,600) 650 11,143

43,190 12.00% (16,893) 39.11% (10,513) 24.34% (3,600) 700 12,884

48,373 12.00% (18,920) 39.11% (11,775) 24.34% (4,000) 700 14,378

Pro Forma Cash Flow Statement Sources of Operating Cash Flow: Net Income Depreciation and Amortization (Increase) Decrease Defer Taxes (Gain) Loss on Sale of Assets (Increase) Decrease Current Assets Increase (Decrease) Current Liab Operating Cash Flow Investment Sources of Cash Flow: Planned Sale of Assets Planned Sale of Investments Other Investment Sources to be used Total Investment Sources of Cash Planned Investments: Capital Expenditures Acquisitions in Other Co's Purchases of Investments Total Investment Applications of Cash Cash Flow from Financing Activities: Proceeds from Loans & Debt Proceeds from Minority Interest

8,685 470 0 15 (789) 1,073 9,453

10,033 490 0 9 (996) 1,291 10,827

11,143 500 0 2 (1,116) 1,446 11,975

12,884 520 0 3 (1,249) 1,620 13,777

14,378 550 0 6 (1,399) 1,814 15,348

100 2,200 0 2,300

60 2,100 0 2,160

20 1,900 0 1,920

25 1,800 0 1,825

35 1,700 0 1,735

(3,500) (500) (3,000) (7,000)

(3,000) (750) (3,500) (7,250)

(3,100) (1,200) (4,500) (8,800)

(2,700) (650) (6,000) (9,350)

(2,600) (350) (7,000) (9,950)

1,300 20

1,000 60

950 80

750 90

650 100

Enter Your Forecast Periods => Other Financing Activities Total Financing Sources of Cash Cash Flow Applied for Financing: Payments on Loans & Debt Dividends Paid to Shareholders Purchase / Retire Stock Other Financing Activities Total Financing Applications of Cash Total Change to Cash Beginning Cash Balance Forecasted Ending Balance

Annual Period 2001 0 1,320

Annual Period 2002 0 1,060

Annual Period 2003 0 1,030

Annual Period 2004 0 840

Annual Period 2005 0 750

(1,500) (2,500) (2,000) 0 (6,000) 73 870 943

(1,000) (3,000) (2,000) 0 (6,000) 797 943 1,740

(600) (4,000) (1,500) 0 (6,100) 25 1,740 1,765

(500) (5,500) (1,000) 0 (7,000) 92 1,765 1,857

(500) (7,000) (500) 0 (8,000) (117) 1,857 1,740

Pro Forma Balance Sheet Cash and Cash Equivalents Short Term Marketable Securities Accounts Receivable Inventory Other Current Assets Total Current Assets Fixed Assets Accumulated Depreciation Net Fixed Assets Longterm Investments Investments in Other Companies Intangibles and Other Assets Total Non Current Assets Total Assets Accounts Payable Short Term Borrowings Short Term Portion of LT Debt Other Current Liabilities Total Current Liabilities Longterm Debt / Borrowings Other Longterm Liabilities Total Non Current Liabilities Total Liabilities 943 0 3,074 2,459 1,998 8,475 31,600 (3,480) 28,120 1,705 912 200 30,937 39,412 5,226 3,689 30 1,845 10,790 3,750 700 4,450 15,240 1,740 0 3,443 2,754 2,238 10,175 34,600 (3,970) 30,630 3,105 1,662 240 35,637 45,812 5,853 4,132 30 2,066 12,081 3,750 750 4,500 16,581 1,765 0 3,856 3,085 2,507 11,213 37,700 (4,470) 33,230 5,705 2,862 320 42,117 53,330 6,556 4,627 25 2,314 13,522 4,100 800 4,900 18,422 1,857 0 4,319 3,455 2,807 12,438 40,400 (4,990) 35,410 9,905 3,512 400 49,227 61,665 7,342 5,183 20 2,591 15,136 4,350 800 5,150 20,286 1,740 0 4,837 3,870 3,144 13,591 43,000 (5,540) 37,460 15,205 3,862 650 57,177 70,768 8,223 5,805 15 2,902 16,945 4,500 800 5,300 22,245

Enter Your Forecast Periods =>

Annual Period 2001

Annual Period 2002

Annual Period 2003

Annual Period 2004

Annual Period 2005

Preferred Equity Common Equity Additional Paid in Capital Retained Earnings Adj for Foreign Currency Transl Treasury Stock Total Equity External Financing Required (EFR)

0 2,200 5,700 26,190 (5,000) (3,550) 25,540 (1,368)

0 2,200 5,700 33,222 (4,000) (5,550) 31,572 (2,341)

0 2,200 5,700 40,365 (2,500) (7,050) 38,715 (3,807)

0 2,200 5,700 47,748 (1,500) (8,050) 46,098 (4,720)

0 2,200 5,700 55,126 (500) (8,550) 53,976 (5,453)

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ProForma Financials (Linear Trend Model) XYZ Ltd
A set of pro forma (forecasted) financial statements are generated using the results of the historical analysis in the previous worksheets. A statistical method known as linear regression is used to predict future values. If you have important assumptions that are important to the forecast, then these assumptions should over-ride the linear calculations since we want our forecast to be as accurate as possible. Key Point => If your historical information has gradual trends, then linear regression is an appropriate model for forecasting. However, if your historical information has distinct steps up or down, then you should consider using a smoothing model .

Before we adopt a regression model, it's a good idea to generate a scatter graph of the actual data and observe if there is a clear trend for fitting a straight regression line into the data:

Total Revenues 30,000 25,000 20,000 15,000 10,000 5,000 0 2002 2004 2006 Periods 2008 2010 Row 10

The calculation of linear values is determined by defining the slope of the line and the y intercept: Order Total Rev Linear Formula for Linear Trendline: Year variable x actual y Value y 2004 1 12,076 12,683 y=(m*x)+b 2005 2 16,719 16,559 2006 3 21,196 20,435 m: slope of line 2007 4 24,737 24,311 x: independent variable 2008 5 27,448 28,188 b: y intercept 2001 6 32,064 2002 7 35,940 2003 8 39,816 2004 9 43,692 2005 10 47,569 The degree of linear fit with the actual data can be expressed as R Square 0.9888

Total Revenues

Annual Period

Annual Period

Annual Period

Annual Period

2001 Pro Forma Income Statement 12-1 12-2 12-3 12-4 12-5 4-25 Gross Revenues Cost of Goods Sold Operating Expenses Operating Income Non Operating Expenses Extra Ordinary Items Net Income 1,054 (1,687) (206) (839) 764 271 197

2002

2003

2004

4,930 (2,927) (1,149) 854 225 271 1,351

8,807 (4,167) (2,092) 2,548 (314) 271 2,505

12,683 (5,407) (3,035) 4,241 (853) 271 3,659

Pro Forma Cash Flow Statement Sources of Operating Cash Flow: Net Income Depreciation and Amortization (Increase) Decrease Defer Taxes (Gain) Loss on Sale of Assets (Increase) Decrease Current Assets Increase (Decrease) Current Liab Operating Cash Flow Investment Sources of Cash Flow: Planned Sale of Assets Planned Sale of Investments Other Investment Sources to be used Total Investment Sources of Cash Planned Investments: Capital Expenditures Acquisitions Purchases of Investments Total Investment Applications of Cash Cash Flow from Financing Activities: Proceeds from Loans & Debt Proceeds from Minority Interest Other Financing Activities Total Financing Sources of Cash Cash Flow Applied for Financing:

197 470 0 15 7,226 (9,318) (1,410)

1,351 490 0 9 (1,047) 1,357 2,160

2,505 500 0 2 (1,047) 1,357 3,317

3,659 520 0 3 (1,047) 1,357 4,492

100 2,200 0 2,300

60 2,100 0 2,160

20 1,900 0 1,920

25 1,800 0 1,825

(3,500) (500) (3,000) (7,000)

(3,000) (750) (3,500) (7,250)

(3,100) (1,200) (4,500) (8,800)

(2,700) (650) (6,000) (9,350)

1,300 20 0 1,320

1,000 60 0 1,060

950 80 0 1,030

750 90 0 840

Payments on Loans & Debt Dividends Paid to Shareholders Purchase / Retire Stock Other Financing Activities Total Financing Applications of Cash Total Change to Cash Beginning Cash Balance Forecasted Ending Balance

(1,500) (2,500) (2,000) 0 (6,000) (10,790) 870 (9,920)

(1,000) (3,000) (2,000) 0 (6,000) (7,870) (9,920) (17,790)

(600) (4,000) (1,500) 0 (6,100) (8,633) (17,790) (26,423)

(500) (5,500) (1,000) 0 (7,000) (9,193) (26,423) (35,616)

Pro Forma Balance Sheet Cash and Cash Equivalents Short Term Marketable Securities Accounts Receivable Inventory Other Current Assets Total Current Assets Fixed Assets Accumulated Depreciation Net Fixed Assets Longterm Investments Investments in Other Companies Intangibles and Other Assets Total Non Current Assets Total Assets Accounts Payable Short Term Borrowings Short Term Portion of LT Debt Other Current Liabilities Total Current Liabilities Longterm Debt / Borrowings Other Longterm Liabilities Total Non Current Liabilities Total Liabilities Preferred Equity Common Equity Additional Paid in Capital Retained Earnings Adj for Foreign Currency Transl Treasury Stock Total Equity (9,920) 0 105 84 69 (9,662) 31,600 (3,480) 28,120 1,705 912 200 30,937 21,275 179 127 30 63 399 3,750 700 4,450 4,849 0 2,200 5,700 17,702 (5,000) (3,550) 17,052 (17,790) 0 493 394 320 (16,582) 34,600 (3,970) 30,630 3,105 1,662 240 35,637 19,055 838 592 30 296 1,756 3,750 750 4,500 6,256 0 2,200 5,700 16,052 (4,000) (5,550) 14,402 (26,423) 0 881 705 572 (24,265) 37,700 (4,470) 33,230 5,705 2,862 320 42,117 17,852 1,497 1,057 25 528 3,107 4,100 800 4,900 8,007 0 2,200 5,700 14,557 (2,500) (7,050) 12,907 (35,616) 0 1,268 1,015 824 (32,509) 40,400 (4,990) 35,410 9,905 3,512 400 49,227 16,718 2,156 1,522 20 761 4,459 4,350 800 5,150 9,609 0 2,200 5,700 12,716 (1,500) (8,050) 11,066

External Financing Required (EFR)

(625)

(1,603)

(3,063)

(3,957)

of the actual data

d the y intercept: Slope m factor 3876.20 Intercept b factor 8806.60

Annual Period

2005

16,559 (6,647) (3,978) 5,934 (1,392) 271 4,813

4,813 550 0 6 (1,047) 1,357 5,679

35 1,700 0 1,735

(2,600) (350) (7,000) (9,950)

650 100 0 750

(500) (7,000) (500) 0 (8,000) (9,786) (35,616) (45,402)

(45,402) 0 1,656 1,325 1,076 (41,345) 43,000 (5,540) 37,460 15,205 3,862 650 57,177 15,832 2,815 1,987 15 994 5,811 4,500 800 5,300 11,111 0 2,200 5,700 10,529 (500) (8,550) 9,379

(4,658)

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ProForma Financials (Exponential Smoothing / Weighted Moving Average) XYZ Ltd
A set of pro forma (forecasted) financial statements are generated using the results of the historical analysis in the previous worksheets. A statistical method known as exponential smoothing is used to plot a trend over historical data. Additionally, we can use a weighted moving average to forecast future periods. Key Point => If you have a general upward historical trend, weighted average will tend to underestimate forecasted values and vice versa (downward trend = overestimate).

Exponential Smoothing and Weighted Moving Averages for Total Revenues: Years => 1996 1997 1998 Total Revenues - Historical 12,076 16,719 21,196 Total Revenues - Exponential 12,076 12,076 16,719 Total Revenues - Wt Moving Avg 11,105 15,230 18,890 Smoothing Factor must be between 0 and 1 Set Smoothing Factor Assign weights to appropriate periods Find the Optimal Smoothing Factor: Total Exponent Revenues Amounts 12,076 12,076 16,719 12,076 21,196 16,719 24,737 21,196 27,448 24,737 Mean Squared Error Difference 0 4,643 4,477 3,541 2,711 0 1.00 0.00%

1 Total weights should add u 1.50% 4.50%

Find the Optimal Moving Weights: Total Weighted Revenues Amounts 12,076 11,105 16,719 15,230 21,196 18,890 24,737 21,605 27,448 22,965 Mean Squared Error Difference 971 1,489 2,306 3,132 4,483

Exponential Comparison
30,000 25,000 Total Revenues Historical Total Revenues Exponential Total

otal Revenues

20,000 15,000 10,000

Exponential Comparison
30,000 25,000 Total Revenues Historical Total Revenues Exponential Total Revenues - Wt Moving Avg 2002 2003 2004 2005

Total Revenues

20,000 15,000 10,000 5,000 0 2001

Periods

Annual Period 2001 Pro Forma Income Statement Gross Revenues Cost of Goods Sold Operating Expenses Operating Income NonOperating Expenses ExtraOrdinary Items Net Income 26,070 (10,197) (6,346) 9,527 (3,200) 650 6,977

Annual Period 2002

Annual Period 2003

26,413 (10,207) (6,226) 9,979 (3,200) 650 7,429

26,316 (9,860) (6,229) 10,227 (3,600) 650 7,277

Pro Forma Cash Flow Statement Sources of Operating Cash Flow: Net Income Depreciation and Amortization (Increase) Decrease Defer Taxes (Gain) Loss on Sale of Assets (Increase) Decrease Current Assets Increase (Decrease) Current Liab Operating Cash Flow Investment Sources of Cash Flow: Planned Sale of Assets Planned Sale of Investments

6,977 470 0 15 472 (562) 7,372

7,429 490 0 9 (92) 120 7,956

7,277 500 0 2 26 (34) 7,771

100 2,200

60 2,100

20 1,900

Other Investment Sources to be used Total Investment Sources of Cash Planned Investments: Capital Expenditures Acquisitions Purchases of Investments Total Investment Applications of Cash Cash Flow from Financing Activities: Proceeds from Loans & Debt Proceeds from Minority Interest Other Financing Activities Total Financing Sources of Cash Cash Flow Applied for Financing: Payments on Loans & Debt Dividends Paid to Shareholders Purchase / Retire Stock Other Financing Activities Total Financing Applications of Cash Total Change to Cash Beginning Cash Balance Forecasted Ending Balance

0 2,300

0 2,160

0 1,920

(3,500) (500) (2,000) (6,000)

(3,000) (750) (3,000) (6,750)

(3,100) (500) (3,000) (6,600)

1,300 20 0 1,320

2,000 60 0 2,060

3,000 80 0 3,080

(1,500) (2,500) 0 0 (4,000) 992 870 1,862

(1,800) (3,000) 0 0 (4,800) 626 1,862 2,488

(2,500) (4,000) 0 0 (6,500) (329) 2,488 2,159

Pro Forma Balance Sheet Cash and Cash Equivalents Short Term Marketable Securities Accounts Receivable Inventory Other Current Assets Total Current Assets Fixed Assets Accumulated Depreciation Net Fixed Assets Longterm Investments Investments in Other Companies Intangibles and Other Assets Total Non Current Assets Total Assets Accounts Payable Short Term Borrowings Short Term Portion of LT Debt Other Current Liabilities 1,862 0 2,607 2,086 1,695 8,249 31,600 (3,480) 28,120 705 912 75 29,812 38,061 4,432 3,128 30 1,564 2,488 0 2,641 2,113 1,717 8,959 34,600 (3,970) 30,630 1,605 1,662 100 33,997 42,956 4,490 3,170 30 1,585 2,159 0 2,632 2,105 1,711 8,606 37,700 (4,470) 33,230 2,705 2,162 150 38,247 46,853 4,474 3,158 25 1,579

Total Current Liabilities Longterm Debt / Borrowings Other Longterm Liabilities Total Non Current Liabilities Total Liabilities Preferred Equity Common Equity Additional Paid in Capital Retained Earnings Adj for Foreign Currency Transl Treasury Stock Total Equity External Financing Required (EFR)

9,155 3,750 700 4,450 13,605 0 2,200 5,700 17,505 (5,000) (1,550) 18,855 5,602

9,274 3,950 750 4,700 13,974 0 2,200 5,700 14,505 (3,500) (1,550) 17,355 11,627

9,236 4,450 800 5,250 14,486 0 2,200 5,700 10,505 (1,000) (1,550) 15,855 16,513

ving Average)

1999 24,737 21,196 21,605

2000 27,448 24,737 22,965

2001

2002

2003

2004

2005

26,070 100.00% 100.00%

26,413

26,316

26,355

26,340

Total weights should add up to => 34.50% 59.50%

Square 0 21,557,449 20,043,529 12,538,681 7,349,521 12,297,836

Square 942,841 2,217,121 5,317,636 9,809,424 20,100,607 7,677,526

al enues torical al enues onential al

al enues torical al enues onential al enues - Wt ving Avg

Annual Period 2004

Annual Period 2005

26,355 (9,694) (6,464) 10,197 (3,600) 700 7,297

26,340 (9,740) (6,859) 9,740 (4,000) 700 6,440

7,297 520 0 3 (11) 14 7,824

6,440 550 0 6 4 (5) 6,995

25 1,800

35 1,700

0 1,825

0 1,735

(3,900) 0 (1,000) (4,900)

(4,600) 0 (1,000) (5,600)

4,500 90 0 4,590

7,000 100 0 7,100

(4,000) (4,000) 0 0 (8,000) 1,339 2,159 3,497

(6,000) (3,000) 0 0 (9,000) 1,230 3,497 4,728

3,497 0 2,636 2,108 1,713 9,955 41,600 (4,990) 36,610 1,905 2,162 150 40,827 50,782 4,480 3,163 20 1,581

4,728 0 2,634 2,107 1,712 11,181 46,200 (5,540) 40,660 1,205 2,162 100 44,127 55,308 4,478 3,161 15 1,580

9,244 4,950 800 5,750 14,994 0 2,200 5,700 6,505 0 (1,550) 12,855 22,932

9,234 5,950 800 6,750 15,984 0 2,200 5,700 3,505 0 (1,550) 9,855 29,469

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Scenario Analysis for XYZ Ltd
We can copy our forecast into a new worksheet and do scenario analysis and goal-seek analysis. Although Microsoft Excel includes Scenario Manager, it can be easier and quicker to simply do our scenario analysis manually. We can use Goal Seek to find a value for a cell given a corresponding formula in another cell. Annual Period 2001 Annual Period 2002 Annual Period 2003

Pro Forma Income Statement (Simple Projection Method) Scenario => Non Operating Expenses will decline by $ 100,000 in year 2003 and again in year 2005: Gross Revenues Cost of Goods Sold Operating Expenses NonOperating Expenses ExtraOrdinary Items Net Income 30,742 (12,024) (7,483) (3,200) 650 8,685 34,431 (13,467) (8,381) (3,200) 650 10,033 38,562 (15,083) (9,387) (3,100) 650 11,643

Instead of copying our forecast into this worksheet, we can simply do scenario analysis directly in the forecast itself. Pro Forma Income Statement (Linear Trend Method) Goal Seek => What total revenues are required if Net Income must be $ 13.5 million in Year 2004? Gross Revenues Cost of Goods Sold Operating Expenses Non Operating Expenses Extra Ordinary Items Net Income (formula cells) 32,064 (11,607) (7,750) (3,549) 271 9,430 35,940 (12,847) (8,693) (4,088) 271 10,584 39,816 (14,087) (9,636) (4,627) 271 11,738

Do not change formula cells (goals) to when using Goal Seek (Tools > Goal S

This is the target cell that Goal Seek is to change per the value 13,500 in cell

ysis and goal-seek analysis. and quicker to simply do our a cell given a corresponding

Annual Period 2004

Annual Period 2005

ar 2003 and again in year 2005: 43,190 (16,893) (10,513) (3,100) 700 13,384 48,373 (18,920) (11,775) (3,000) 700 15,378

scenario analysis directly in

e $ 13.5 million in Year 2004? 44,301 (15,327) (10,579) (5,166) 271 13,500 47,569 (16,567) (11,522) (5,705) 271 14,046

Do not change formula cells (goals) to values when using Goal Seek (Tools > Goal Seek)

This is the target cell that Goal Seek is seeking o change per the value 13,500 in cell G34

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Budget Analysis for XYZ Ltd
Once we complete our forecast, we can summarize and review it before finalizing it into the form of budgets. We also need to summarize our assumptions that should go into our final budget. We can start our budget process by reviewing the different revenue forecast:

Annual Period 2001 Summarize Revenue Forecast: Simple Projection Model Linear Trend Model Wt Moving Avg Model Declining Growth Model Historical Data Projection using declining growth rates: Gross Revenues 29,644

Annual Period 2002

Annual Period 2003

30,742 1,054 26,070 29,644 12,076

34,431 4,930 26,413 31,422 16,719

38,562 8,807 26,316 32,679 21,196

31,422

32,679

Forecast Comparisons
60,000 50,000 Simple Projection Model Linear Trend Model Wt Moving Avg Model Declining Growth Model Historical Data 2002 2003 2004 2005

Total Revenues

40,000 30,000 20,000 10,000 0 2001

Periods
In addition to using linear models for forecasting, we can apply several non-linear (curve) models: Logarithmic - Used when rate of change in data suddenly shifts upward or downward. Power - Used when rate of change in data occurs at a specific rate.

Exponential - Used when rate of change is increasing or decreasing at ever higher rates. Polynomial - Used when rate of change fluctuates with no pattern.

Logarithmic Trend Formula for Logarithmic Trendline y = ( c * LN (x)) - b LN: Natural Logarithm x factor 1 2 3 4 5 6 7 8 9 10 Actual Predicted Values Value y 12,076 (11,242) 16,719 (4,587) 21,196 (695) 24,737 2,067 27,448 4,210 5,960 7,440 8,722 9,853 10,865

Power Trendline y = b * x^c x factor 1 2 3 4 5 6 7 8 9 10 Exponential Trendline x factor y = b * EXP ( c * x ) 1 2 3 4 5 6 7 8 9 10 Actual Predicted Values Value y 12,076 13,061 16,719 16,007 21,196 19,618 24,737 24,043 27,448 29,465 36,111 44,256 54,238 66,472 81,464 Actual Predicted Values Value y 12,076 11,951 16,719 17,109 21,196 21,104 24,737 24,493 27,448 27,491 30,212 32,721 35,063 37,267 39,356

Polynomial Trendline y = (c2 * x^2) + (c1 * x^1) + b x factor 1 2 Actual Predicted Values Value y 12,076 #VALUE! 16,719 #VALUE!

3 4 5 6 7 8 9 10

21,196 24,737 27,448

#VALUE! #VALUE! #VALUE! #VALUE! #VALUE! #VALUE! #VALUE! #VALUE!

Summarize Non Linear Curves on Graph: Logarithmic Trendline Power Trendline Exponential Trendline Polynomial Trendline Actual Revenues 1996 (11,242) 11,951 13,061 #VALUE! 12,076 1997 (4,587) 17,109 16,007 #VALUE! 16,719 1998 (695) 21,104 19,618 #VALUE! 21,196

Non Linear Trends
100,000 80,000

60,000 40,000 20,000 0 (20,000) 1997 1999 2001 2003 2005 1996 1998 2000 2002 2004 Periods

Logari Trendl Power Trendl Expon Trendl Polyno Trendl Actual Reven

Variance Analysis of Past Budgets:

Total Revenues

Accuracy in the budget process should be examined to determine the degree of error or variance in the budget process. If the variance is high, this indicates a need to improve planning techniques within the company. TBD: To be Determined 2004 Income Statement Items Total Revenues - Budgeted Total Revenues - Actual % difference from actual Cost of Goods Sold - Budgeted Cost of Goods Sold - Actual % difference from actual Operating Income - Budgeted Operating Income - Actual % difference from actual Net Income - Budgeted Net Income - Actual % difference from actual Balance Sheet Items Current Assets - Budgeted Current Assets - Actual % difference from actual NonCurrent Assets - Budgeted NonCurrent Assets - Actual % difference from actual Current Liabilities - Budgeted Current Liabilities - Actual % difference from actual NonCurrent Liabilities - Budgeted NonCurrent Liabilities - Actual % difference from actual Ratio Items Current Ratio - Budgeted Current Ratio - Actual % difference from actual Total Asset Turnover - Budgeted Total Asset Turnover - Actual % difference from actual Gross Profit Margin - Budgeted Gross Profit Margin - Actual % difference from actual 10,500 12,076 -13% (4,500) (4,950) -9% 3,100 3,815 -19% 2,100 2,925 -28% 2005 14,500 16,719 -13% (6,500) (7,050) -8% 4,900 5,776 -15% 4,100 4,968 -17% 2006 22,500 21,196 6% (8,648) (8,233) 5% 9,000 8,309 8% 6,500 6,240 4%

3,450 3,895 -11% 10,900 13,251 -18% 3,750 4,312 -13% 1,750 1,810 -3%

4,400 5,025 -12% 14,000 16,335 -14% 5,600 6,245 -10% 2,450 2,500 -2%

6,250 5,763 8% 22,000 19,951 10% 8,200 7,375 11% 3,750 3,301 14%

0.92 0.90 2% 0.68 0.70 -3% 60% 59% 2%

0.79 0.80 -2% 0.72 0.78 -8% 60% 58% 4%

0.76 0.78 -2% 0.80 0.82 -3% 60% 61% -2%

Net Profit Margin - Budgeted Net Profit Margin - Actual % difference from actual Debt to Common Equity - Budgeted Debt to Common Equity - Actual % difference from actual Return on Equity - Budgeted Return on Equity - Actual % difference from actual

19% 24% -22% 0.45 0.50 -11% 20% 24% -16%

25% 30% -16% 0.50 0.63 -20% 29% 33% -13%

28% 29% -5% 0.60 0.63 -4% 32% 35% -9%

We can use specific measurements to track and control forecasting errors: Mean Absolute Error - An absolute value of forecast errors, does not place weight on the amount of the error. Calculated as the sum of (actual values - predicted values) / n. Mean Square Error - Similar to Mean Absolute Error, but does place more emphasis on the amount of error; i.e. an error of 8 is twice as significant as 4. Calculated as the sum of (actual values - predicted values)^2 / n. Root Mean Square Error - To make the Mean Square Error useful and comparable to the Mean Absolute Error, we can take the square root of the Mean Square Error. We can then use this as a guide to establish an error limit or standard for flagging unacceptable errors. Actual Forecasted Example: Total Revenues Period Revenues Revenues n: total number of periods 1996 12,076 10,500 1997 16,719 14,500 1998 21,196 22,500 1999 24,737 28,500 2000 27,448 30,000 n => 5 Sum => Mean Absolute Error Mean Square Error Root Mean Sqr Error Establish Error Limits

before finalizing it ions that should wing the different

Annual Period 2004

Annual Period 2005

43,190 12,683 26,355 33,170 24,737

48,373 16,559 26,340 31,000 27,448

33,170

31,000

Simple Projection Model Linear Trend Model Wt Moving Avg Model Declining Growth Model Historical Data

veral non-linear (curve) models: ward or downward.

ng at ever higher rates.

Slope c factor 9600.92

Intercept b factor 11242.34

Slope c factor 0.52

Intercept b factor 9.39 11951.33

Slope c factor 0.2

Intercept b factor 9.27 10657.5

< - calculate using c and b factor - > Predicted ( c * x) EXP Value y 0.20339 1.23 13,061 0.40678 1.5 16,007 0.61017 1.84 19,618 0.81356 2.26 24,043 1.01695 2.76 29,465 1.22034 3.39 36,111 1.42373 4.15 44,256 1.62712 5.09 54,238 1.83051 6.24 66,472 2.03390 7.64 81,464

c2 #VALUE!

c1 #VALUE!

b #VALUE!

1999 2,067 24,493 24,043 #VALUE! 24,737

2000 4,210 27,491 29,465 #VALUE! 27,448

2001 5,960 30,212 36,111 #VALUE!

2002 7,440 32,721 44,256 #VALUE!

2003 2004 2005 8,722 9,853 10,865 35,063 37,267 39,356 54,238 66,472 81,464 #VALUE! #VALUE! #VALUE!

Trends
Logarithmic Trendline Power Trendline Exponential Trendline Polynomial Trendline Actual Revenues

003 2005 2004

the degree of error or es a need to improve (Wksht 16) 2001 30,500 TBD #VALUE! (11,929) TBD #VALUE! 11,146 TBD #VALUE! 7,986 TBD #VALUE!

2007 28,500 24,737 15% (9,650) (9,050) 7% 11,000 9,995 10% 9,000 7,911 14%

2000 30,000 27,448 9% (11,000) (10,150) 8% 10,500 10,150 3% 9,300 7,701 21%

7,500 6,804 10% 27,500 25,375 8% 9,050 8,590 5% 4,900 4,490 9%

7,900 7,511 5% 29,500 26,602 11% 9,400 9,687 -3% 5,100 4,945 3%

8,253 TBD #VALUE! 31,555 TBD #VALUE! 10,715 TBD #VALUE! 5,250 TBD #VALUE!

0.83 0.79 5% 0.80 0.77 4% 60% 63% -5%

0.80 0.78 3% 0.79 0.80 -2% 60% 63% -5%

0.77 TBD #VALUE! 0.77 TBD #VALUE! 0.61 TBD #VALUE!

30% 32% -6% 0.65 0.57 13% 35% 33% 5%

28% 28% 0% 0.55 0.53 4% 30% 26% 16%

26% TBD #VALUE! 0.48 TBD #VALUE! 24% TBD #VALUE!

not place weight on the dicted values) / n.

ce more emphasis on alculated as the

and comparable to the Mean rror. We can then use this eptable errors. Error 1,576 2,219 (1,304) (3,763) (2,552) (3,824) Absolute 1,576 2,219 1,304 3,763 2,552 3,824 765 2,924,595 1,710 1,710 Error Squared 2,483,776 4,923,961 1,700,416 14,160,169 6,512,704 14,622,976

Is Error Outside Limit? No Yes No Yes Yes Yes

Mean Absolute Error Mean Square Error Root Mean Sqr Error Establish Error Limits

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Final Budgets for XYZ Ltd
Now that we have analyzed our historical data and placed it into a set of forecast, we can pull it all together with our assumptions for a final budget. Many of these assumptions should be included in our forecast for improved accuracy. However, we need to fine tune and finalize all assumptions so that we can produce a final finished budget for planning purposes. Budget Period 2001 Operating Plan

Ref

16-1 16-2 16-3 16-4 16-5 16-6 16-7 16-8 16-9 16-10

Total Revenues Cost of Goods Sold Operating Expenses Operating Income Interest Expenses Income Taxes Other Non Operating Expenses Earnings Before Extra Ord Items Extra Ordinary Items Net Income Financial Plan Budgeted Cash Flows

30,500 (11,929) (7,424) 11,146 (310) (3,300) (200) 7,336 650 7,986

16-11 16-12 16-13 16-14 16-15 16-16 16-17

Net Income Depreciation and Amortization (Increase) Decrease Defer Taxes (Gain) Loss on Sale of Assets (Increase) Decrease Current Assets (Increase) Decrease Current Liab Operating Cash Flow Investment Sources of Cash: Planned Sale of Assets Planned Sale of Investments Other Investment Sources to be used Total Investment Sources of Cash Planned Investments: Capital Expenditures

7,986 470 0 15 (724) 988 8,735

16-18 16-19 16-20 16-21

100 2,200 0 2,300

16-22

(4,500)

16-23 16-24 16-25

Acquisitions in Other Co's Purchases of Investments Total Investment Applications of Cash Cash Flow from Financing Activities Proceeds from Loans & Debt Proceeds from Minority Interest Other Financing Activities Total Financing Sources of Cash Cash Flow Applied for Financing: Payments on Loans and Debt Dividends Paid to Shareholders Purchase / Retire Stock Other Financing Activities Total Financing Applications of Cash Total Change to Cash Beginning Cash Balance Forecasted Ending Balance Budgeted Balance Sheet

(350) (2,500) (7,350)

16-26 16-27 16-28 16-29

1,450 15 0 1,465

16-30 16-31 16-32 16-33 16-34 16-35 16-36 16-37

(1,250) (2,500) (1,500) 0 (5,250) (100) 870 770

16-38 16-39 16-40 16-41 16-42 16-43 16-44 16-45 16-46 16-47 16-48 16-49 16-50 16-51 16-52 16-53 16-54 16-55 16-56 16-57 16-58 16-59

Cash and Cash Equivalents Short Term Marketable Securities Accounts Receivable Inventory Other Current Assets Total Current Assets Fixed Assets Accumulated Depreciation Net Fixed Assets Longterm Investments Investments in Other Companies Intangibles and Other Assets Total Non Current Assets Total Assets Accounts Payable Short Term Borrowings Short Term Portion of LT Debt Other Current Liabilities Total Current Liabilities Longterm Debt / Borrowings Other Longterm Liabilities Total Non Current Liabilities

770 10 3,050 2,440 1,983 8,253 32,600 (3,480) 29,120 1,205 1,000 230 31,555 39,808 5,185 3,660 40 1,830 10,715 4,150 1,100 5,250

16-60 16-61 16-62 16-63 16-64 16-65 16-66 16-67 16-68 16-69

Total Liabilities Preferred Stock Common Equity Additional Paid in Capital Retained Earnings Adj for Foreign Currency Translation Treasury Stock Total Equity Total Liabilities and Equity External Financing Required

15,965 0 2,200 5,700 25,491 (5,000) (3,050) 25,341 41,306 (1,499)

a and placed it into a set of ssumptions for a final budget. ed in our forecast for improved finalize all assumptions et for planning purposes.

Assumptions & Comments

Based on review of Pro Forma Financials, Marketing, etc. Volume projections, production budgets, and vertical analysis Average % of Sales per Vertical Analysis

Based on anticipated levels of debt and past history Based on anticipated taxable income and effective rate Provision for contingency was added on this line item

Per our Simple Model Forecast

Review of Simple Model Forecast and Capital Expenditure Budget Per Simple Forecast Model Same formula as used in forecast models Same formula as used in forecast models

Per Simple Model Forecast Per Simple Model Forecast

Budgeted $ 4.5 million in Capital Expenditure Budget

Per forecast, strategic plan, and other budgets Per forecast, strategic plan, and other budgets

Per Financing Requirements and other budgets Per historical financials and investment budget

Per forecast and other budgets Per Simple Model Forecast Per strategic plan and other budgets

Per above Per historical financials Same formula as used in forecast models Same formula as used in forecast models Same formula as used in forecast models

Same formula as used in forecast models Same formula as used in forecast models Same formula as used in forecast models Per review of forecast and strategic plans Per review of forecast and historical balances

Same formula as used in forecast models Same formula as used in forecast models Per review of forecast and historical information Same formula as used in forecast models

Same formula as used in forecast models Per review of historical information and expected growth rates.

Per Simple Model Forecast Per Simple Model Forecast Same formula as used in forecast models Per Simple Model Forecast Same formula as used in forecast models

Microsoft Excel 9.0 Answer Report Worksheet: [Detail_Analysis.xls]13 - Pro Forma (Exp) Report Created: 3/16/2002 3:42:28 PM

Target Cell (Min) Cell Name $G$60 Mean Squared Error Square

Original Value 20,525,549

Final Value 12,297,836

Adjustable Cells Cell Name $D$24 Set Smoothing Factor

Original Value 0.70

Final Value 1.00

Constraints Cell Name $D$23 Smoothing Factor must be between 0 and 1 $D$24 Set Smoothing Factor

Cell Value

Formula Status Slack 0 $D$23>=$D$23 Binding 0 1.00 $D$24<=$E$23 Binding 0

Microsoft Excel 9.0 Answer Report Worksheet: [Detail_Analysis.xls]13 - Pro Forma (Exp) Report Created: 3/16/2002 5:19:05 PM

Target Cell (Min) Cell $G$46 Mean Squared Error Square

Name

Original Value 65,536,151

Adjustable Cells Cell Name $D$25 Assign weights to appropriate periods $E$25 Assign weights to appropriate periods $F$25 Assign weights to appropriate periods Total weights should add up to => $G$25 Assign weights to appropriate periods $H$25 Assign weights to appropriate periods

Original Value 0.00% 2.00% 5.00% 35.00% 60.00%

Constraints Cell Name $I$25 Assign weights to appropriate periods $D$25 Assign weights to appropriate periods $E$25 Assign weights to appropriate periods $F$25 Assign weights to appropriate periods Total weights should add up to => $G$25 Assign weights to appropriate periods $H$25 Assign weights to appropriate periods $D$25 Assign weights to appropriate periods $E$25 Assign weights to appropriate periods $F$25 Assign weights to appropriate periods Total weights should add up to => $G$25 Assign weights to appropriate periods $H$25 Assign weights to appropriate periods

Cell Value 100.00% 0.00% 1.50% 4.50% 34.50% 59.50% 0.00% 1.50% 4.50% 34.50% 59.50%

Final Value 59,853,342

Final Value 0.00% 1.50% 4.50% 34.50% 59.50%

Formula $I$25=$E$23 $D$25<=$E$23 $E$25<=$E$23 $F$25<=$E$23 $G$25<=$E$23 $H$25<=$E$23 $D$25>=$D$23 $E$25>=$D$23 $F$25>=$D$23 $G$25>=$D$23 $H$25>=$D$23

Status Binding Not Binding Not Binding Not Binding Not Binding Not Binding Binding Not Binding Not Binding Not Binding Not Binding

Slack 0 1 0.99 0.96 0.66 0.41 0.00% 1.50% 4.50% 34.50% 59.50%

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