WALL STREET PREP - FINANCIAL MODELING QUICK LESSON - BUILDING A SIMPLE DISCOUN

Valuation Date: 1/1/2022

Share Price on Valuation Date: $25.00
Diluted Shares Outstanding 500.0

Select Operating Data

Project
2010A 2011A 2012A 2013P
Revenue $5,300.0 $5,700.0 $6,000.0 $6,810.0
Revenue Growth Rate (%) 13.5%

EBITDA $2,000.0 $2,080.0 $2,150.0 $2,792.10

EBITDA Margin (%) 41.0%

EBIT 1,700.0 1,750.0 1,800.0 $1,362.0

EBIT Margin (%) 20.0%

Depreciation & Amortization $300.0 $330.0 $350.0 $326.88

D&A as a % of revenue 4.8%

Select Balance Sheet And Other Data

Project
2010A 2011A 2012A 2013P
Cash $700.0 $1,000.0 $1,500.0 1,500.0
Accounts Receivable 1,100.0 1,250.0 1,350.0 1,525.5
Inventories 900.0 925.0 935.0 1,061.2
Prepaid Expenses 50.0 63.0 75.0 89.7

Accounts Payable $930.0 $960.0 $1,000.0 $1,015.0

Accrued Expenses 90.0 88.0 93.0 102.3

Debt 2,300.0 4,750.0 4,250.0 4,250.0

Capital Expenditures 455.0 488.0 535.0 588.5

Accounts Receivable Growth (%) 13.0%

Inventories Growth (%) 13.5%
Prepaid Expenses Growth (%) 19.6%
Accounts Payable Growth (%) 1.5%
Accrued Expenses Growth (%) 10.0%
Capital Expenditures Growth (%) 10.0%

Free Cash Flow Buildup

$mm Project
2010A 2011A 2012A 2013P
Period 1
Total Revenues $6,810.0
EBITDA 2,792.1
EBIT 1,362.0
Tax rate 40.0%
EBIAT $817.2
Depreciation & Amortization 326.9
Accounts receivable (175.5)
Inventories (126.2)
Prepaid expenses (14.7)
Accounts payable 15.0
Accrued expenses 9.3
Capital expenditures (53.5)
Unlevered free cash flows $798.5
Discount Rate (WACC) 9.6%
Present value of free cash flows $728.7
Sum of present values of FCFs $4,902.6

Terminal Value
Growth in perpetuity method:
Long term growth rate 2.5%
WACC 9.6%
Free cash flow (t+1) 1,906.5
Terminal Value 26,965.7
Present Value of Terminal Value $17,074.7

WACC
Share Price $25.00
Diluted Shares Outstanding 500.0
Cost of Debt 4.8%
Tax Rate 40.0%
After-tax Cost of Debt 2.88%
Rf 6.0%
Market return 12.5%
Beta 0.90
cost of equity 11.85%
Total Debt ($) $4,250.0
Total Equity ($) 12,500.0
Total Capital $16,750.0

Debt Weighting d/c 25.4%

Equity Weighting e/c 74.6%
WACC = 9.57%

Enterprise Value to Equity Value

Enterprise Value $21,977.3
Less: Net debt 2,750.0
Equity Value $19,227.3
Diluted Shares Outstanding 500.0
Equity Value Per Share $38.45

Ans: we buy it
A SIMPLE DISCOUNTED CASH FLOW MODEL

Projected Annual Forecast

2014P 2015P 2016P 2017P
$7,763.4 $8,850.3 $10,089.3 $11,501.8
14.0% 14.0% 14.0% 14.0%

$3,182.99 $3,363.10 $3,833.94 $4,370.69

41.0% 38.0% 38.0% 38.0%

$1,707.9 $2,124.1 $2,522.3 $2,875.5

22.0% 24.0% 25.0% 25.0%

$372.64 $424.81 $484.29 $552.09

4.8% 4.8% 4.8% 4.8%

Projected Annual Forecast

2014P 2015P 2016P 2017P
1,500.0 1,500.0 1,500.0 1,500.0
1,723.8 1,930.7 2,143.0 2,357.4
1,209.8 1,379.2 1,572.3 1,792.4
106.5 123.1 139.1 160.4

$1,070.8 $1,168.3 $1,283.9 $1,411.0

113.6 127.2 143.7 162.4

4,250.0 4,250.0 4,250.0 4,250.0

653.2 731.6 826.7 934.2

13.0% 12.0% 11.0% 10.0%

14.0% 14.0% 14.0% 14.0%
18.7% 15.6% 13.0% 15.3%
5.5% 9.1% 9.9% 9.9%
11.0% 12.0% 13.0% 13.0%
11.0% 12.0% 13.0% 13.0%
 Projected Annual Forecast
2014P 2015P 2016P 2017P
2 3 4 5
$7,763.4 $8,850.3 $10,089.3 $11,501.8
3,183.0 3,363.1 3,833.9 4,370.7
1,707.9 2,124.1 2,522.3 2,875.5
40.0% 40.0% 40.0% 40.0%
$1,024.8 $1,274.4 $1,513.4 $1,725.3
372.6 424.8 484.3 552.1
(198.3) (206.9) (212.4) (214.3)
(148.6) (169.4) (193.1) (220.1)
(16.8) (16.6) (16.0) (21.3)
55.8 97.4 115.7 127.1
11.3 13.6 16.5 18.7
(64.7) (78.4) (95.1) (107.5)
$1,036.1 $1,339.1 $1,613.3 $1,860.0
9.6% 9.6% 9.6% 9.6%
$862.5 $1,017.1 $1,118.1 $1,176.1

$1,906.5