Company A Financial Statement

Year 0 Year 1 Year 2

S$ Million
Total Total Total
Income Statement
Operating revenue $ 8,537 $ 9,233 $ 9,670
Operating expenses $ (6,184) $ (6,270) $ (6,416)
EBITDA $ 2,353 $ 2,963 $ 3,255
Net interest expense $ (130) $ (143) $ (148)
Taxation $ (198) $ (201) $ (203)
Depreciation & amortisation $ (743) $ (753) $ (759)
Net profit $ 1,282 $ 1,866 $ 2,145
Growth Rate - 8% 5%
20% 9%
Operating Revenue & Expenses Composition
Mobile Service $ 2,812 $ 3,375 $ 3,690
Others $ 5,725 $ 5,858 $ 5,980
Operating revenue $ 8,537 $ 9,233 $ 9,670

Operating expenses $ 6,184 $ 6,270 $ 6,416

3% 5%
17% 4%
Mobile Subscribers ('000s) 4,085 4,195 4,409
ARPU* 57 67 70

Growth rate average 6.44%

Note: Company A launched it's first mobile handset leasing plans at the start of Year 1
It aims to make premium handsets more affordable to customers

We can clearly see an increase in the operating revenue which resulted in net profit augementing
respectively with 46 % in Year one and 15% in year 2

The ARPU increased

Fill in the blanks in Blue
Note: Company X has not launched leasing mobile plans
Forecast the impact of leasing handsets, on the relevant financial statement figures

Company X Financial Statement (handset leasing implemented)

Year 0 Year 1 Year 2
S$ Million
Total Total Total
Income Statement
Operating revenue $ 2,362 $ 2,449 $ 2,542
Operating expenses $ (1,796) $ (1,821) $ (1,863)
EBITDA $ 566 $ 628 $ 679
Net finance expense $ (27) $ (30) $ (31)
Taxation $ (45) $ (46) $ (46)
Depreciation & amortisation $ (294) $ (298) $ (300)
Net profit $ 200 $ 256 $ 302

Operating Revenue & Expenses Composition

Mobile Service $ 1,354 $ 1,441 $ 1,534
Others $ 1,008 $ 1,008 $ 1,008
Operating revenue $ 2,362 $ 2,449 $ 2,542

Operating expenses $ 1,796 $ 1,862 $ 1,933

Mobile Subscribers ('000s) 2,341 2,404 2,527

ARPU* 48 56 59

Industy estimated growth rate 4.49%

inancial statement figures

Company X Financial Statement (handset leasing not implemented)

Year 0 Year 1 Year 2
S$ Million
Total Total Total
Income Statement
Operating revenue $ 2,362 $ - $ -
Operating expenses $ (1,796) $ - $ -
EBITDA $ 566 $ - $ -
Net finance expense $ (27)
Taxation $ (45)
Depreciation & amortisation $ (294)
Net profit $ 200 $ - $ -

Operating Revenue & Expenses Composition

Mobile Service $ 1,354
Others $ 1,008
Operating revenue $ 2,362 $ - $ -

Operating expenses $ 1,796 $ - $ -

Mobile Subscribers ('000s) 2,341

ARPU* 48 #DIV/0! #DIV/0!
Difference in Company X Financial Statement with and without handset leasing
Year 0 Year 1 Year 2
S$ Million
Total Total Total
Income Statement
Operating revenue $ 2,362 $ 2,449 $ 2,542
Operating expenses $ (1,796) $ (1,821) $ (1,863)
EBITDA $ 566 $ 628 $ 679
Net finance expense $ (27) $ (30) $ (31)
Taxation $ (45) $ (46) $ (46)
Depreciation & amortisation $ (294) $ (298) $ (300)
Net profit $ 200 $ 256 $ 302

Operating Revenue & Expenses Composition

Mobile Service $ 1,354 $ 1,441 $ 1,534
Others $ 1,008 $ 1,008 $ 1,008
Operating revenue $ 2,362 $ 2,449 $ 2,542

Operating expenses $ 1,796 $ 1,862 $ 1,933

Mobile Subscribers ('000s) 2,341 2,404 2,527

ARPU* 48 #DIV/0! #DIV/0!
Company B Financial Statement Note: Company B operates in the sam
Year 0 Year 1 Year 2
S$ Million
Total Total Total
Income Statement
Operating revenue $ 8,784 $ 9,033 $ 9,006 By observing the data we can d
Operating expenses $ (6,153) $ (6,372) $ (6,470) which has decreased with 4% in
EBITDA $ 2,631 $ 2,661 $ 2,536
Net interest expense $ (158) $ (194) $ (189)
Taxation $ (356) $ (341) $ (305)
Depreciation & amortisation $ (1,416) $ (1,507) $ (1,469)
Net profit $ 2,117 $ 2,126 $ 2,042
- 2.84% -0.30%
Operating Revenue & Expenses Composition 0.43% -3.93%
Mobile Service $ 5,465 $ 5,641 $ 5,764
Others $ 3,371 $ 3,363 $ 3,102
Operating revenue $ 8,784 $ 9,033 $ 9,006

Operating expenses $ 6,153 $ 6,372 $ 6,470

Mobile Subscribers ('000s) 9,106 9,281 9,324 The ARPU remaind stagnant
ARPU* 50 51 52

Growth rate average 1.27%

ompany B operates in the same market as Company A, and has not launched leasing plans

y observing the data we can detect a decreasing tendency of the operating

hich has decreased with 4% in the second year

he ARPU remaind stagnant

Guiding Sheet
What are the key steps you need to arrive at the answer?
You are trying to find the incremental impact of introducing handset leasing. To do this, you
leasing vs do not introduce leasing.

5 steps to solving this task

Step 1. Identify the metrics that are most important
Step 2. To estimate the no leasing case, you apply the industry average growth rates for the relevant metri
Step 3. To estimate the leasing case, you apply Company A growth rates
Step 4. Make logical estimates for all other figures, using historical data
Step 5. Calculate the impact of handset leasing for Company X

Step 1. Identify the metrics that are most important

1a. Net profit
1b. Operating Revenue
1c. ARPU

Step 2. To estimate the no leasing case, you apply the industry average growth rates
2a. Estimate industry average growth rates by combining the data for Company A and Company B for the
2b. Apply the industry average to forecast Company X performance if handset leasing is not introduced

Step 3. To estimate the leasing case, you apply Company A growth rates to Company

Step 4. Make logical estimates for all other figures, using historical data
4a. Some metrics are likely to be a fixed ratio of revenue or profits
4b. For others, the best estimate is just to assume it will remain constant

Step 5. Calculate the impact of handset leasing for Company X

5a. To show the difference in Company X's key metrics with and without handset leasing, you subtract the
g Sheet
he key steps you need to arrive at the answer?
to find the incremental impact of introducing handset leasing. To do this, you need to estimate what
not introduce leasing.

solving this task

he metrics that are most important
ate the no leasing case, you apply the industry average growth rates for the relevant metrics for Company X
ate the leasing case, you apply Company A growth rates
ical estimates for all other figures, using historical data
e the impact of handset leasing for Company X

fy the metrics that are most important

Ultimately the most important number, but it is a dependant variable, and hence will need to be calculated
This is the biggest driver of net profit as most other aspects remain constant
As an additional measure of performance

timate the no leasing case, you apply the industry average growth rates for the relevant metri
ustry average growth rates by combining the data for Company A and Company B for the key metrics
ustry average to forecast Company X performance if handset leasing is not introduced

timate the leasing case, you apply Company A growth rates to Company X

logical estimates for all other figures, using historical data

s are likely to be a fixed ratio of revenue or profits
he best estimate is just to assume it will remain constant

late the impact of handset leasing for Company X

difference in Company X's key metrics with and without handset leasing, you subtract the numbers in step (2) from s