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

Valuation Date: 1/1/2013

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 $6,600.0
Revenue Growth Rate (%) 10.0%

EBITDA $2,000.0 $2,080.0 $2,150.0 $2,310.0

EBITDA Margin (%) 35.0%

EBIT 1,700.0 1,750.0 1,800.0 $1,980.0

EBIT Margin (%) 30.0%

Depreciation & Amortization $300.0 $330.0 $350.0 $369.6

D&A as a % of revenue 5.6%

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 1,485.0
Inventories 900.0 925.0 935.0 949.0
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 (%) 10.0%

Inventories Growth (%) 1.5%
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 $6,600.0
EBITDA 2,310.0
EBIT 1,980.0
Tax rate 40.0%
EBIAT $1,188.0
Depreciation & Amortization 369.6
Accounts receivable (135.0)
Inventories (14.0)
Prepaid expenses (14.7)
Accounts payable 15.0
Accrued expenses 9.3
Capital expenditures (53.5)
Unlevered free cash flows $1,364.7
Discount Rate (WACC) 12.0%
Present value of free cash flows $1,218.6
Sum of present values of FCFs $5,744.3

Terminal Value
Growth in perpetuity method:
Long term growth rate 4.0%
WACC 12.0%
Free cash flow (t+1) 2,052.8
Terminal Value 25,706.3
Present Value of Terminal Value $14,595.8

WACC
Share Price $25.00
Diluted Shares Outstanding 500.0
Cost of Debt 5.2%
Tax Rate 40.0%
After-tax Cost of Debt/tax shield 3.1%
Cost of Equity 15.0%

Total Debt ($) $4,250.0

Total Equity ($) 12,500.0
Total Capital $16,750.0

Debt Weighting 25.4%

Equity Weighting 74.6%

WACC = 12.0%
Enterprise Value to Equity Value
Enterprise Value $20,340.1
Less: Net debt 2,750.0
Equity Value $17,590.1
Diluted Shares Outstanding 500.0
Equity Value Per Share $35.18

Q: If the stock is trading at $25.00 a share and you believe that your DCF analysis is accurate, would you buy or sell stock i
G A SIMPLE DISCOUNTED CASH FLOW MODEL

Projected Annual Forecast

2014P 2015P 2016P 2017P
$7,326.0 $8,205.1 $9,271.8 $10,477.1
11.0% 12.0% 13.0% 13.0%

$2,564.1 $2,871.8 $3,245.1 $3,667.0

35.0% 35.0% 35.0% 35.0%

$2,197.8 $2,461.5 $2,781.5 $3,143.1

30.0% 30.0% 30.0% 30.0%

$388.3 $336.4 $435.8 $461.0

5.3% 4.1% 4.7% 4.4%

Projected Annual Forecast

2014P 2015P 2016P 2017P
1,500.0 1,500.0 1,500.0 1,500.0
1,648.4 1,846.2 2,086.2 2,357.4
1,001.2 1,092.3 1,200.5 1,319.3
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

11.0% 12.0% 13.0% 13.0%

5.5% 9.1% 9.9% 9.9%
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
$7,326.0 $8,205.1 $9,271.8 $10,477.1
2,564.1 2,871.8 3,245.1 3,667.0
2,197.8 2,461.5 2,781.5 3,143.1
40.0% 40.0% 40.0% 40.0%
$1,318.7 $1,476.9 $1,668.9 $1,885.9
388.3 336.4 435.8 461.0
(163.4) (197.8) (240.0) (271.2)
(52.2) (91.1) (108.1) (118.8)
(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)
$1,477.0 $1,540.5 $1,777.6 $1,973.9
12.0% 12.0% 12.0% 12.0%
$1,177.7 $1,096.9 $1,130.3 $1,120.7

Beyond forcasted years

would you buy or sell stock in this company? Why?
q
WALL STREET PREP - FINANCIAL MODELING QUICK LESSON - BUILDING A SIMPLE DISCOUN
Valuation Date: 1/1/2013
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 $6,600.0
Revenue Growth Rate (%) 10.0%

EBITDA $2,000.0 $2,080.0 $2,150.0 $2,310.0

EBITDA Margin (%) 35.0%

EBIT 1,700.0 1,750.0 1,800.0 $1,980.0

EBIT Margin (%) 30.0%

Depreciation & Amortization $300.0 $330.0 $350.0 $369.6

D&A as a % of revenue 5.6%

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 1,485.0
Inventories 900.0 925.0 935.0 949.0
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

Gross PP&E (increases annually be capex) 455.0 488.0 535.0 588.5

Accounts Receivable Growth (%) 10.0%

Inventories Growth (%) 1.5%
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 $6,600.0
EBITDA 2,310.0
EBIT 1,980.0
Tax rate 40.0%
EBIAT $1,188.0
Depreciation & Amortization 369.6
Accounts receivable (135.0)
Inventories (14.0)
Prepaid expenses (14.7)
Accounts payable 15.0
Accrued expenses 9.3
Capital expenditures (53.5)
Unlevered free cash flows $1,364.7
Discount Rate (WACC) 12.0%
Present value of free cash flows $1,218.6
Sum of present values of FCFs $5,744.3

Terminal Value
Growth in perpetuity method:
Long term growth rate 4.0%
WACC 12.0%
Free cash flow (t+1) 2,052.8
Terminal Value 25,706.3
Present Value of Terminal Value $14,595.8

WACC
Share Price $25.00
Diluted Shares Outstanding 500.0
Cost of Debt 5.2%
Tax Rate 40.0%
After-tax Cost of Debt 3.1%
Cost of Equity 15.0%

Total Debt ($) $4,250.0

Total Equity ($) 12,500.0
Total Capital $16,750.0

Debt Weighting 25.4%

Equity Weighting 74.6%

WACC = 12.0%
Enterprise Value to Equity Value
Enterprise Value $20,340.1
Less: Net debt 2,750.0
Equity Value $17,590.1
Diluted Shares Outstanding 500.0
Equity Value Per Share $35.18

Q: If the stock is trading at $25.00 a share and you believe that your DCF analysis is accurate, would you buy or sell stock i
A: Buy, because according to intrisic valuation, stock should actually be valued at $35.18 but market value is $25.00. Ther
G A SIMPLE DISCOUNTED CASH FLOW MODEL

Projected Annual Forecast

2014P 2015P 2016P 2017P
$7,326.0 $8,205.1 $9,271.8 $10,477.1
11.0% 12.0% 13.0% 13.0%

$2,564.1 $2,871.8 $3,245.1 $3,667.0

35.0% 35.0% 35.0% 35.0%

$2,197.8 $2,461.5 $2,781.5 $3,143.1

30.0% 30.0% 30.0% 30.0%

$388.3 $336.4 $435.8 $461.0

5.3% 4.1% 4.7% 4.4%

Projected Annual Forecast

2014P 2015P 2016P 2017P
1,500.0 1,500.0 1,500.0 1,500.0
1,648.4 1,846.2 2,086.2 2,357.4
1,001.2 1,092.3 1,200.5 1,319.3
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

11.0% 12.0% 13.0% 13.0%

5.5% 9.1% 9.9% 9.9%
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
$7,326.0 $8,205.1 $9,271.8 $10,477.1
2,564.1 2,871.8 3,245.1 3,667.0
2,197.8 2,461.5 2,781.5 3,143.1
40.0% 40.0% 40.0% 40.0%
$1,318.7 $1,476.9 $1,668.9 $1,885.9
388.3 336.4 435.8 461.0
(163.4) (197.8) (240.0) (271.2)
(52.2) (91.1) (108.1) (118.8)
(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)
$1,477.0 $1,540.5 $1,777.6 $1,973.9
12.0% 12.0% 12.0% 12.0%
$1,177.7 $1,096.9 $1,130.3 $1,120.7
would you buy or sell stock in this company? Why?
market value is $25.00. Therefore, the stock is "cheap."
Valuation Date: 31/12/2021
Share Price on Valuation Date: SAR 196.8
Diluted Shares Outstanding 120,000,000.0

Select Operating Data

12/31/2018 12/31/2019 12/31/2020

Revenue SAR 7,361,723.0 SAR 8,424,512.0 SAR 9,305,811.0
Revenue Growth Rate (%)

EBITDA SAR 1,178,520.0 SAR 1,322,447.0 SAR 1,376,504.0

EBITDA Margin (%)

EBIT SAR 978,219.0 SAR 1,070,995.0 SAR 1,100,889.0

EBIT Margin (%)

Depreciation & Amortization SAR 987.0 SAR 5,315.0 SAR 6,959.0

D&A as a % of revenue

Select Balance Sheet And Other Data

SAR 40,543.0 SAR 40,908.0 SAR 41,274.0

Cash SAR 145,545.0 SAR 28,786.0 SAR 97,090.0
Accounts Receivable SAR 180,482.0 SAR 180,114.0 SAR 143,396.0
Inventories SAR 1,057,673.0 SAR 1,259,959.0 SAR 1,307,859.0
Prepaid Expenses SAR 374,212.0 SAR 320,362.0 SAR 291,381.0

Accounts Payable SAR 904,748.0 SAR 913,119.0 SAR 1,072,808.0

Accrued Expenses SAR 115,931.0 SAR 125,491.0 SAR 141,228.0

Debt SAR 284,610.0 SAR 988,115.0 SAR 680,704.0

Net PPE SAR 1,115,297.0 SAR 1,766,031.0 SAR 1,711,229.0
Capital Expenditures SAR 40,596.0 SAR 656,049.0 (SAR 47,843.0)

Accounts Receivable Growth (%)

Inventories Growth (%)
Prepaid Expenses Growth (%)
Accounts Payable Growth (%)
Accrued Expenses Growth (%)
Capital Expenditures Growth (%)

Free Cash Flow Buildup

$mm
SAR 40,543.0 SAR 40,908.0 SAR 41,274.0
Period
Total Revenues
EBITDA
EBIT
Tax rate
EBIAT
Depreciation & Amortization
Accounts receivable
Inventories
Prepaid expenses
Accounts payable
Accrued expenses
Capital expenditures
Unlevered free cash flows
Discount Rate (WACC)
Present value of free cash flows
Sum of present values of FCF SAR 3,040,830.3

Terminal Value
Growth in perpetuity method:
Long term growth rate 4.0%
WACC 11.8%
Free cash flow (t+1) SAR 1,682,640.4
Terminal Value SAR 21,575,086.9
Present Value of Terminal Va #VALUE!

WACC
Share Price SAR 198.8
Diluted Shares Outstanding 120,000,000.0
Cost of Debt -19.70%
Tax Rate 0.02%
After-tax Cost of Debt/tax shield -19.7%
Cost of Equity SAR 23,856,000,000.0

Total Debt ($) SAR 647,969.4

Total Equity ($) SAR 23,856,000,000.0
Total Capital SAR 23,856,647,969.4

Debt Weighting 0.25%

Equity Weighting 99.75%

WACC = 2379636000000.0%
Enterprise Value to Equity Value
Enterprise Value SAR 20,340.1
Less: Net debt SAR 583,614.0
Equity Value (SAR 563,273.9)
Diluted Shares Outstanding SAR 120,000,000.0
Equity Value Per Share (SAR 0.0)
 Projected Annual Forecast
12/31/2021 12/31/2022 12/31/2023
SAR 10,676,461.9 SAR 12,484,625.0 SAR 14,874,553.6
14.7% 16.9% 19.1%

SAR 1,655,768.9 SAR 1,936,189.5 SAR 2,306,833.8

15.5% 15.5% 15.5%

SAR 1,346,579.0 SAR 1,574,635.3 SAR 1,876,067.3

12.6% 12.6% 12.6%

SAR 5,538.1 SAR 6,476.0 SAR 7,715.7

0.1% 0.1% 0.1%

Projected Annual Forecast

SAR 41,639.0 SAR 42,004.0 SAR 42,369.0
SAR 166,763.1 SAR 195,006.1 SAR 232,336.1
SAR 220,165.5 SAR 257,452.6 SAR 306,736.7
SAR 1,522,266.6 SAR 1,780,077.3 SAR 2,120,837.1
SAR 398,791.1 SAR 466,330.3 SAR 555,599.8

SAR 1,234,759.7 SAR 1,443,878.4 SAR 1,720,279.6

SAR 180,903.3 SAR 211,541.0 SAR 252,036.2

SAR 647,969.4 SAR 757,709.4 SAR 902,757.5

SAR 1,868,308.2 SAR 2,184,724.5 SAR 2,602,945.7
SAR 162,617.3 SAR 322,892.2 SAR 425,937.0

53.5% 16.9% 19.1%

16.4% 16.9% 19.1%
36.9% 16.9% 19.1%
15.1% 16.9% 19.1%
15.1% 16.9% 19.1%
-439.9% 98.6% 31.9%
 Projected Annual Forecast
SAR 41,639.0 SAR 42,004.0 SAR 42,369.0
SAR 1.0 SAR 2.0 SAR 3.0
SAR 10,676,461.9 SAR 12,484,625.0 SAR 14,874,553.6
SAR 1,655,768.9 SAR 1,936,189.5 SAR 2,306,833.8
SAR 1,346,579.0 SAR 1,574,635.3 SAR 1,876,067.3
0.02% 0.02% 0.02%
SAR 1,346,326.0 SAR 1,574,368.0 SAR 1,875,669.3
SAR 5,538.1 SAR 6,476.0 SAR 7,715.7
(SAR 76,769.5) (SAR 37,287.2) (SAR 49,284.1)
(SAR 214,407.6) (SAR 257,810.7) (SAR 340,759.7)
(SAR 107,410.1) (SAR 67,539.2) (SAR 89,269.5)
SAR 161,951.7 SAR 209,118.6 SAR 276,401.3
SAR 39,675.3 SAR 30,637.7 SAR 40,495.2
(SAR 210,460.3) (SAR 160,274.9) (SAR 103,044.7)
SAR 944,443.6 SAR 1,297,688.4 SAR 1,617,923.5
11.8% 11.8% 11.8%
SAR 844,769.3 SAR 1,038,232.5 SAR 1,157,828.6