Sample Final

FIN3516

1. Consider the following familiar example:

The three columns show correspondingly, the three time periods when each
transaction is recognized. Additionally, the company
a. Make an accrual based earnings calculation. (5 points)
b. Make a cash flow based earnings calculation (5 points)
c. Link the two above showing the moving in working capital items (5 points)
d. Suppose now, that i) in step 6 above P and PCR are now 2500, while S an
PCU are 400 ii) in step 7 P and PCR are now 3400 and, S an PCU 5000. Do
your answers in your answer in a) and b) change due to the change in i) or
change in ii)? Explain why or why not. (11 points)
 2. Profitability

You are an analyst at a major investment company. The investment company

considers buying a small enterprise called AnotherAssignment ASA. Your employer
provides you with some data, in particular an income statement as well as a balance
sheet for the fiscal years 2009 and 2010. You are supposed to assess the
profitability.

Income Statement:
2 009 2 010
Revenue 1 332.6 1 493.6
Cost of sales -601.8 -634.2
Gross profit 730.8 859.4
Distribution costs -359.1 -417.2
Administrative expenses -239.4 -278.2
Operating profit 132.3 164.0
Finance expense -104.3 -101.8
Finance income 15.0 3.4
Profit/(loss) before taxation 43.0 65.6
Taxation -12.9 -19.7
Profit/(loss) 30.1 45.9

Balance Sheet:
Non-current assets 2009 2010
Property, plant, and equipment 257.6 268.7
Intangible assets 726.0 729.2
Financial assets 0.2 0.3
Other receivable 51.8 51.8
1 035.6 1 050.0
Current assets
Inventory 140.6 126.3
Trade and other receivables 53.2 72.2
Derivative financial instrumnets 20.4 16.4
Cash and short term deposits 161.1 206.3
375.3 421.2
Total assets 1 410.9 1 471.2

Current liabilities
Trade and other payables 260.8 287.5
Financial liabilities 39.8 39.8
 300.6 327.3
Non-current liabilities
Trade and other payables 78.0 85.3
Financial liabilities 754.0 782.2
Derivative financial instruments 13.7 8.5
Deferred income tax liabilities 94.8 94.1
940.5 970.1
Total liabilities 1 241.1 1 297.4

Equity/(deficit)
Share capital 120.0 120.0
Retained earnings 49.8 53.8
Total equity 169.8 173.8

Q1: Compute the Net Operating Profit after Tax (NOPAT) for both years. Reconcile
the companys profit from the NOPAT by adding financial expenses and income, and
the relevant tax savings due to deductibility of interest rates for year 2009. (6 points)
Q2: Analyze the balance sheet of AnotherAssignment ASA so that you marked the
contributions of operating and financing activities. Compute invested capital in two
ways: (8 points)
1) Start with total assets and deduct financing related assets and operating
liabilities.
2) Start with equity, and add financing liabilities and deduct financing assets.

Q3: Compute following ratios to assess profitability: return on invested capital (ROIC)
before and after tax, turnover rate of investment capital, and profit margin before and
after tax.(6 points)
 3. Liquidity

You are provided with data for YetAnotherCompany ltd for the fiscal years 2014 and
2015. You are interested in assessing the short and long-term liquidity of the
company. In addition, you know that the Cash Flow from Operations (CFO) amounts
to 680 in 2014 and 702.2 in 2015.

Income Statement:
2014 2015
Revenue 890.0 950.0
Cost of sales -501.8 -534.2
Gross profit 388.2 415.8
Staff costs -130 -140
Other administrative costs -123.3 -120.1
Other operating income -10 -10
EBITDA 124.9 145.7
Depreciation and -50 -55
amortization
EBIT 74.9 90.7
Net financial expenses -5 -7
Income before tax 69.9 83.7
Tax -20.97 -25.11
Income after tax 48.9 58.6

Balance Sheet:
Non-current assets 2014 2015
Property, plant, and 257.6 268.7
equipment
Intangible assets 726.0 729.2
Financial assets 0.2 0.3
Other receivable 51.8 51.8
1 035.6 1 050.0
Current assets
Inventory 140.6 126.3
Trade and other receivables 53.2 72.2
Derivative financial 20.4 16.4
instrumnets
Cash and short term 161.1 206.3
deposits
375.3 421.2
Total assets 1 410.9 1 471.2
 Current liabilities
Trade and other payables 100.8 87.5
Financial liabilities 199.8 239.8
300.6 327.3
Non-current liabilities
Financial liabilities 832.0 867.5
Derivative financial 108.5 102.6
instruments
940.5 970.1
Total liabilities 1 241.1 1 297.4

Equity/(deficit)
Share capital 120.0 120.0
Retained earnings 49.8 53.8
Total equity 169.8 173.8

Q1: Assess short-term liquidity risk by computing liquidity cycle, current ratio, quick
ratio, and CFO to short-term debt ratio. (7 points)

Q2: Assess long-term by computing following key ratios: financial leverage, solvency
ratio, interest coverage ratio, and CFO to debt ratio. (7 points)
 4. Forecasting and valuation

Construct pro-forma financial statements for XYZ Company for the fiscal years 2016
and 2017. (It is not required to complete a cash flow statement in 2015, but all lines
required for 2016 and 2017). (each question below 8 points)
Q1 balance sheet
Q2 income statement, and
Q3 cash flow statement
Q4 Value the company using EVA valuation
Q5 Value the company using DCF valuation
Assumptions for forecast years:
1) Tax rate is 29%
2) Depreciation rate is 15% (use contemporaneous non-current assets as
benchmark)
3) Sales grow with 3% per year
4) EBITDA margin is 35%
5) Cost of debt (interest paid on net interest bearing debt) is constant (use
2015 value)
6) Non-current assets to sales ratio is 40%
7) Current assets to sales ratio is 20%
8) Non interest bearing debt to sales ratio is 8%
9) Net interest bearing debt to total assets ratio is 30%
10) The complete free cash flow to equity is paid out as dividends
Income Statement:
2 015 2016E 2017E
Net revenue/ sales 30 000
Cost of sales -12 000
Gross profit 18 000
SG&A -1 800
Net other operating -3 600
income/expenses
EBITDA 12 600
Depreciation and amortization -1 800
EBIT 10 800
Tax on EBIT -3 132
NOPAT 7 668
Net financial expenses -216
Tax 63
Net income/ Profit after tax 7 515
Balance Sheet:
2 015 2016E 2017E
Non-current assets, total 12 000
Current assets, total 6 000
Total assets 18 000

Total non interest bearing 2 400

debt

Invested capital 15 600

Equity at begin
Profit after tax
Dividends
Equity at end 10 200

Net interest bearing debt 5 400

Invested capital 15 600

Cash flow statement (also fill in missing account below NOPAT):

2 015 2016E 2017E
NOPAT

Cash flow from operations

Investment non-current assets

Free cash flow to the firm

Net financial expenses

Change interest bearing debt
Free cash flow to equity

Dividends
Cash surplus