Build A Financial Model

An company has sales of $50 million growing at 25% YoY with EBITDA margins at 20%. It secures a JV in Year 3 w
(linear scaling implies Revenue Yr-3=20, Yr-4=30). Capex required for normal growth of the firm is 7.5% of sales a
JV sales). The model should use debt, retained earnings to grow the firm. The current debt ratio of the firm is 2:
Capex should be done at current debt equity ratio. For current year inventory = 6mn, receivables = 8 mn, payabl
company is 30%, Depreciation rate is 10%, Interest Expense Rate is 10% (depreciation and interest to be calculat
period cash). Value the firm using both methods DCF and Relative. For DCF Valuation assume weights of equity a
Beta of comparable company is 0.5. Company goes in maturity stage from year 7 onwards with growth at 5% for
15 ? What is the value of the firm today at 1 year forward PE 10 ?

Formulae for Working Capital Line Items:

DOH Average Inventory / (COGS/365)
DSO Average Accounts Receivables / (Sales/365)
Pay Days Average Trade Payables / (COGS/365)
 secures a JV in Year 3 with additional business of $20 million at EBITDA of 12.5% which linearly scales up to $50 million in Y
he firm is 7.5% of sales and Capex required for expansion at time of JV is $4 million (after JV year capex for JV revenue will b
bt ratio of the firm is 2:1 with average cash conversion cycle of 90 days and payment terms with debtor and creditors at 60
eivables = 8 mn, payables = 5 mn and retained earning = 9mn, Fixed Asset, Net & Gross = 15mn and Cash = 3mn. Tax rate fo
d interest to be calculated on average of current and previous year) and Interest Income Rate is 5%(interst income on begin
ume weights of equity and debt based on current book value. Risk free return in the economy is 7%, market risk premium is
s with growth at 5% forever. For relative valuation use P/E as valuation metric. What would be the value of the firm in year
 Year-0 Year-1 Year-2 Year-3 Year-4 Year-5 Year-6

Income Statement

Sales 50 63 78 98 122 153 190.73

y/y % growth 25% 25% 25% 25% 25% 0.25
Sales - JV 0 0 20 30 40 50.00
Total Sales 50 63 78 118 152 193 240.73

COGS 50 63 96 124 157 196.34

EBITDA 20% 13 16 20 24 31 38.15

EBITDA-JV 12.50% - - 3 4 5 6.25
EBITDA-Total 13 16 22 28 36 44.40
Depreciation 10.0% 2 2 3 4 6 7.17
EBIT 11 13 19 24 30 37.22
Interest Expense 10.0% 1.956 2.308 2.881 3.638 4.500 5.58
Interest Income 5.0% 0.150 (0.066) 0.513 (0.042) 0.991 0.71
EBT 8.959 10.989 16.542 20.227 26.459 32.35

Tax 30.0% 2.69 3.30 4.96 6.07 7.94 9.71

PAT 6.27 7.69 11.58 14.16 18.52 22.65

Cape Schedule
Capex 5 6 7 9 11 14
Capex as % Sales 7.5% 7.5% 7.5% 7.5% 7.5% 7.5%
Capex - JV 4 2 3 4
Capex as % Sales JV 7.5% 7.5% 7.5%
Total Capex 5 6 11 11 14 18

Capex Funding
Debt 67% 3 4 8 8 10 12
Equity - Retained Earning 33% 2 2 4 4 5 6

Balance Sheet

Cash 3 (1) 10 (1) 20 14 41

Inventory 6 19 12 35 26 51 45
Account Receivable 8 13 13 26 24 39 40
PPE, Gross 15 20 26 37 48 63 81
Acc Dep 2 4 7 11 17 24
PPE, Net 15 18 22 30 37 46 57
Total Assets 32 48 57 89 107 150 183
Accounts Payable 5 11 9 22 18 33 31
Debt 18 21 25 33 40 50 62
Retained Earnings 9 15 23 35 49 67 90
Total Liabilities and Sh Equity 32 48 57 89 107 150 183
Checksum - - - - - - -

D/E
DOH 90 90 90 90 90 90 90
DSO 60 60 60 60 60 60 60
Pay Days 60 60 60 60 60 60 60

Cash Flow Statement

PAT 6 8 12 14 19 23
Dep 2 2 3 4 6 7
Change in Inv (13) 6 (23) 9 (25) 6
Change in AR (5) (1) (12) 1 (14) (1)
Change in AP 6 (2) 13 (4) 15 (2)
CFO 0 -3 14 -7 24 -1 32

Capex (5) (6) (11) (11) (14) (18)

CFI 0 -5 -6 -11 -11 -14 -18

Change in Debt 3 4 8 8 10 12
CFF 0 3 4 8 8 10 12

Net Change in Cash 0 -4 12 -11 21 -6 26

BOP Cash 3 (1) 10 (1) 20 14

EOP Cash 3 (1) 10 (1) 20 14 40.60

DCF Valuation

We 33.3%
Wd 66.7%
Ke 10.5%
Kd 10.0%
WACC 8.2%

NOPAT = EBIT*(1-T) 8 9 13 17 21 26
Depreication 2 2 3 4 6 7
Capex 5 6 11 11 14 18
Change in Working Capital (11) 4 (22) 6 (25) 3
FCFF 15 2 27 4 37 13
TerminalValue 419
Total Cash Flows 15 2 27 4 37 432

Enterprise Value 334

Less: Debt 62
Add: Cash 41
Intrinsic Equity Value 313

Relative Valuation

PAT - Year1 6 PAT - Year6 23

PE 10x PE 15x
Value 63 Value 340

CAGR % 24%
<==fcff(6)*(1+5%)/(wacc-5%)