FINANCIAL STATEMENT ANALYSIS

AND VALUATION (ACFI810)

Week 9 – Forecasting and Valuation Analysis
What You Will Learn
• How simple forecasts yield simple but insightful valuations

• How forecasts are developed from the current financial statements

• How sales forecasts are combine with financial statement information to provide
simple forecasts

• When simple forecasts and simple valuations work as reasonable

approximations

• How simple forecasting works as an analysis tool in sensitivity analysis

• How simple valuation models work in reverse engineering mode to challenge

the market price

• How simple valuation models enhance screening analysis

15-2
The Big Picture for this Chapter
The tenet: Anchor valuation on what you know rather
than speculation

The financial statements, appropriately formulated and

analyzed, are “what we know”

Therefore, anchor a valuation on what you see in the

financial statements before adding speculation

 Value implied by  Value from 

Value =   + speculation 
financial statements

This Chapter Next Chapter

“Simple Valuation” “Full pro forma
valuations”
A Simple Valuation Model

We can get the ingredients from the

financial statements:

• Date 0 items are in the financial statements

• Date 1 items can be forecasted from the
financial statements
• Growth, g, can be forecasted from the
financial statements
PPE, Inc.: The Financial Statements

Required return for operations = 10%

Required return for debt = 4%
The No-growth Forecast
Earnings Forecast of Earnings Forecast of Residual Earnings Forecast of Abnormal
Component Component for the Component Earnings Growth

Operating OI1 = Core OI0 + (ρ F − 1) ΔNOA0 ReOI1 = ReOI0 AOIG = 0

Earnings Earn1 = Earn0 + (ρ E −1)ΔCSE0 RE1 = RE0 AEG = 0

PPE Inc.

Pro Forma Income Statement, Year 1

Operating income: 9.8 + (0.10 x 4.5) 10.25

Interest expense: 7.7 × 0.04 0.308

Earnings 9.942

ReOI0 = (9.8 – (0.10 × 69.9) = 2.81

ReOI1 = 10.25 – (0.10 × 74.4) = 2.81

The No-growth ReOI Valuation

Core ReOI0
V0NOA = NOA0 +
ρF − 1

For PPE Inc.,

2.81
V0NOA = 74.4 +
0.10
= 102.5

V0E = V0NOA − V0NFO

= 102.5 - 7.7
= 94.8
The No-growth AOIG Valuation
V0 NOA
= OI1
ρ F −1

Constant ReOI implies AOIG = 0

Zero AOIG implies a normal enterprise P/E ratio

For PPE Inc.
10.25
V0 NOA
=
0.10

= 102.5
No-growth Valuation: Nike, Inc.
The Growth Forecast
Earnings Forecast of Earnings Forecast of Residual Earnings
Component Component

Operating OI1 = Core RNOA0 x NOA0 RNOA1 − (ρ F − 1) NOA0 = Core RNOA0 − (ρ F − 1) NOA0

Earnings Earn1 = ROCE0 x CSE0 ROCE1 − (ρE −1)CSE0 = ROCE0 − (ρE −1) CSE0

For PPE, Inc. the current core RNOA = 9.8/69.9 = 14.02%

PPE Inc.

Pro Forma Income Statement, Year 1

Operating income: 0.1402 x 74.4 10.431

Interest expense: 7.7 x 0.04 0.308

Earnings 10.123

ReOI1 = 10.431 – (0.10 × 74.4) = 2.991

= (0.1402 – 0.10) × 74.4 = 2.991
The Forecasted Growth Rate
[RNOA1 − (ρ F − 1)] NOA0
Growth Rate in ReOI1 =
[RNOA0 − (ρ F − 1)] NOA−1

If RNOA1 = RNOA0
NOA0
Growth Rate in ReOI1 =
NOA−1

For PPE:
g = 74.4/69.9 = 1.0644
The Growth Valuation
ReOI1
V0NOA = NOA0 +
ρ-g

= 74.4 + 2.991
1.10 - 1.0644

= 158.41

V0E = V0NOA − NFO

= 158.41− 7.7

= 150.71
The Growth Valuation Restated
Core RNOA0 − (g − 1)
NOA
V0 = NOA0 x
ρF − g

The NOA multiplier

(Enterprise P/B ratio)

For PPE Inc., g = 1.0644 (6.44% growth)

For PPE Inc., g = 1.0644 (6.44% growth)

0.1402 − 0.0644
NOA
V0 = 74.4 x
1.10 − 1.0644
Enterprise P/B = 2.13
= 158.41
The AOIG Growth Valuation
1  G2 − ρF 
V0NOA = OI1  1 + 
ρF −1  ρF − g 

Forward
Enterprise P/E

G2 = Cum-dividend growth rate, two years ahead

For PPE Inc.

G 2 = 11.667 10.431 = 1.1185 (11.85% growth)

1  1.1185 − 1.10 
V0NOA = 10.431 x 1+
0.10  1.10 − 1.0644


Forward
= 158.41 Enterprise
P/E =15.20
Growth Valuation: Nike, Inc.
Simple Forecasts and Simple Valuations
Simple
Simple Valuation of the Equity Simple Valuation of the Operations
Forecast
ReOI=0
V0E = CSE 0 V0NOA = NOA0

Core ReOI0 Core ReOI0 OI 1

Growth V0E = CSE0 + V0NOA = NOA0 + =
F −1 F −1 F −1

No- V0E = CSE0 +

Core RNOA − (
0 F
− 1) NOA0
V0NOA = NOA0 +
Core RNOA − (ρ
0 F
− 1) NOA0
growth F − g ρF − g
Core RNOA0 − g − 1
= NOA0 
ρF − g

1  G 2 − ρF 
= OI1  1 + 
ρF −1  ρF − g 
Weighted-Average Forecasts of Growth
Weighted-average forecast of growth in ReOI:

Forecasted growth rate for ReOI =

(0.70 × Current growth rate for ReOI) + (0.30 × 4%)

where 4% is the historical GDP growth rate

______________________________________________________________
__
For Nike Inc.,

Forecasted NOA growth rate = (0.70 × 4.6%) + (0.30 × 4.0%)

= 4.42%

This implies a value for Nike of $71.54 per share)

__________________________________________________________________________________

Recognize an historical fact:

Growth rates trend towards the average growth rate for the economy
• RNOA tends to decline over time
• Investment tends to slow down over time
Sales Growth Can Replace NOA Growth
1
NOA = Sales 
ATO

If ATO is constant,
1
Growth in NOA = Growth in Sales 
ATO

Forecast growth in NOA with forecasted sales growth

rate
A Simple Valuation Based on Core RNOA and Sales Growth:
Coca Cola
A Simple Valuation Based on Core RNOA and Sales Growth: Coca
Cola
Average sales growth rate, 2002-2007 = 5.4%
Simple Valuation:
Reverse Engineering the Enterprise P/B for Nike Inc.

Nike share price = $74

Shares outstanding = 484 million
Market price of equity = $35,816
Net financial assets = 4,370
Enterprise market value $31,446

NOA2010 = $5,514
Core RNOA2010 = 30.1%

ReOI2011 = (0.301 − 0.091)  5,514 = $1,158

1,158
Enterprise price = 31,446 = 5,514 +
1.091- g

0.301- (g - 1)
= 5,514 x
1.091- g

g = 1.046 (a 4.6% growth rate)

Enhanced Stock Screening
Rather than screen on P/E or P/B, screen as follows:

1. Unlever: Use enterprise multiples (and get rid of

leverage effects on the ratios)

2. Reverse engineer to the expected return or the

implied growth rate

3. Screen on expected returns or implied growth rates

Simple Forecasting as an Analytical Device:
Sensitivity Analysis

“As If” Questions

• Effect of changes in RNOA on forecasts and values

• Effect of changes in PM and ATO

• Effect of changes in sales growth and in NOA

• Effect of leverage on forecasts of net income

The Valuation Grid: Nike, Inc.
What values are implied by different combinations of RNOA
and growth in NOA?

A Valuation Grid for Nike, 2010:

What You Will Learn
• How forecasting is a matter of financial statement analysis for the future

• How financial statement drivers translate economic factors into a valuation

• How to identify key drivers

• How to conduct full-information pro forma analysis

• The 15 steps in pro forma analysis

• The seven steps involved in forecasting residual operating income and abnormal
operating income growth

• How mergers and acquisitions are evaluated

• How pro forma analysis is used as a tool in strategy analysis

The Big Picture for this Chapter
• Pro forma analysis is the tool to add speculative information to the simple
valuations of Chapter 15

• Pro forma analysis involves forecasting the future financial statements

• The future financial statements are forecasted by the same drivers of our
financial statement analysis
➢ Sales growth
➢ Operating profit margin
➢ Asset turnovers

These drivers drive residual operating income

A Reminder: The Steps of Fundamental Analysis
Knowing the Business 1
· The Products
· The Knowledge Base
· The Competition
· The Regulatory Constraints
· The Management
Strategy

Analyzing Information 2
· In Financial Statements
· Outside of Financial Statements

Forecasting Payoffs 3
· Measuring Value Added
· Forecasting Value Added

Convert Forecasts to a 4
Valuation

Trading on the Valuation 5

Outside Investor
Compare Value with Price to
BUY, SELL or HOLD

Inside Investor
Compare Value with Cost to
ACCEPT or REJECT Strategy
Review of Chapter 1 - Knowing the Business:
Know the Firm’s Products
• Type of products

• Consumer demand for the product

• Price elasticity of demand for the product

• Substitutes for the product. Is it differentiated? On price?

On quality?

• Brand name association of the product

• Patent protection for the product

Knowing the Business:
Know the Technology
• Production process

• Marketing process

• Distribution channels

• Supplier network

• Cost structure

• Economies of scale
Knowing the Business:
Know the Firm’s Knowledge Base
• Direction and pace of technological change and the firm’s grasp of it

• Research and development programs

• Tie-in to information networks

• Managerial talent

• Ability to innovate in product development

• Ability to innovate in production technology

• Economies from learning

Knowing the Business:
Know the Competition
• Concentration in the industry, the number of firms and their sizes

• Barriers to entry in the industry and the likelihood of new entrants and
substitute products
• The firm’s position in the industry. Is it the first mover or a follower in the
industry? Does it have a cost advantage?
• Competitiveness of suppliers. Do suppliers have market power? Do labor
unions have power?
• Capacity in the industry? Is there excess capacity or under capacity?

• Relationships and alliances with other firms

Knowing the Business:
Know the Management
• What is management’s track record?

• Is management entrepreneurial?

• Does management focus on shareholders’ or their own interests?

• Do stock compensation plans serve shareholders’ interests?

• What is the ethical charter under which the firm operates?

• How strong are the corporate governance mechanisms

Knowing the Business:
Know the Political, Legal and Regulatory Environment
• The firm’s political influence

• Legal constraints on the firm including antitrust law, consumer law,

labor law and environmental law
• Regulatory constraints on the firm including product and price
regulations
• Taxation of the business
Financial Statement Analysis:
The Lens on the Business
Economic Factors

The Filter of Financial Statement

Analysis

Economic Factors Interpreted as ReOI Drivers

Four Points of Focus
1. Focus on Residual Operating Income and its Drivers

2. Focus on Change

3. Focus on Key Drivers

4. Focus on Choice versus Conditions

Focus on Residual Operating Income (ReOI)
Two drivers:
Core Other OI UI
RNOA = Core Sales PM  ATO + +
1. NOA NOA
1
NOA = Sales 
2. ATO

The drivers can be captured in one expression for ReOI:

 Required return for operations 

Re OI = Sales  Core Sales PM -  + Core Other OI + UI
 ATO 

To add ReOI (and AOIG and value):

grow sales and increase Core Sales PM with lower
Asset Turnover
Focus on Change
A. Establish Typical Driver Pattern for Industry

B. Modify Typical Driver Pattern for Forecasted Changes for the Industry and the
Economy

C. Discover How a Firm’s Driver Pattern will be Different from the Typical Pattern

Remember

ΔRNOA t = ΔCore Sales PMt ×ATOt-1  + ΔATOt ×Core Sales PMt 

 Core Other OI   UI 
+Δ   +Δ 
 NOA   NOA 
Driver Patterns: Core RNOA
(All NYSE and AMEX firms, 1965 – 99)

0.35

0.3

0.25

0.2
Core RNOA

0.15

0.1

0.05

-0.05
The rate of convergence towards common level is referred to as the Fade Rate
What economic factors drive fade rates?
-0.1
Year Ahead
Driver Patterns:
Core Other Income/NOA
0.06

0.05

0.04
Core Other Income / NOA

0.03

0.02

0.01

-0.01

-0.02
Year Ahead
Driver Patterns:
Unusual Items/NOA
0.08

0.06
Unusual Items / NOA

0.04

0.02

-0.02

-0.04

-0.06
Year Ahead
 Driver Change Patterns:
Sales
0.6
Growth Rates
0.5

0.4
Sales Growth Rate

0.3

0.2
t

0.1

-0.1

-0.2

-0.3
Year Ahead
16-42
 Driver Change Patterns:
Change in Core Sales PM
0.06

0.04
Change in Core Sales PM

0.02

-0.02

-0.04

-0.06

-0.08
Year Ahead
16-43
Driver Change
0.8 Patterns: Change in ATO
0.6

0.4
Change in ATO

0.2

-0.2

-0.4

-0.6

-0.8

-1
Year Ahead
Forecasting How a Firm’s Drivers will be
Different from the Typical Pattern
• The tension between the forces of competition and the firm’s responses to those
forces: challenge and counter challenge

• Firms challenge other firms:

• Product price reduction
• Product innovation
• Lower production costs
• Imitation of successful firms
• Entering industries where firms are earning abnormal profits

• Firms counter challenge:

• Brand creation
• Patent protection
• Managing consumer expectations
• Alliances and agreements with competitors, suppliers and firms with related technology
• Exploiting first-mover advantages
• Mergers
• Creating superior production and marketing technologies
• Creating economies of scale that are difficult to replicate
• Creating a technological standard that consumers and other firms must tie into
• Government protection
Focus on Key Drivers
• Some firms have one or two drivers that are key to driving ReOI. Analysts focus on
these key drivers

Industry Key Economic Factors Key ReOI Drivers

Airlines Load factors and fares Sales and ATO

Automobiles Model design and production efficiency Sales and margins
Beverages Brand management and product innovation Sales
Cellular Phones Population covered (POP) and churn rates Sales and ATO
Commercial Real Estate Square footage and occupancy rates Sales and ATO
Computers Technology path and competition Sales and margins
Fashion Clothing Brand management Sales, advertising
Internet Commerce Hits per hour Sales and ATO
Non-fashion clothing Production efficiency Margins
Pharmaceuticals Research and development Sales
Retail Retail space and sales per square foot Sales and ATO
Driver History for a Brand Name Company: Nike, Inc.
Driver History for a Brand Name Company: Coca-Cola
Full Information Forecasting

• Forecast all economic factors and the full set of ReOI drivers

• Express forecasts in a set of pro forma financial statements

An Example with PPE Inc. follows

PPE, Inc.: Initializing Financial Statements

Required return for operations = 10%

Required return for debt = 4%
Forecasting for PPE Inc.
The forecasts:

• Sales are forecasted to grow at 5%

• Forecasted Core PM is 7.85%
1
• Forecasted ATO is 1.762 ( = 56.75 cents for each dollar of sales)
ATO

With these three forecasts we can value the firm

16-51
PPE Inc.: The Pro Forma for Operating Activities
PPE, Inc.:
The Residual income Valuation
2.853
V0NOA = $ 74.42 + = $131.48 million
1.10 − 1.05

= $131.48 million

V0F =V0NOA − NFO

= $131.48 - 7.70

= $123.78 million
PPE Inc.
The AOIG Valuation

1  0.142 
V0 =
E
10.295 +  − 7.70
0.10  1.10 − 1.05

= $123.78 million
(or $0.96 on 100 million shares)
PPE Inc.
The Free Cash Flow Valuation from the Pro Forma

FCF1
V0 =
E
− NFO0
F − g

6.574
= − 7.70
1.10 − 1.05

= $123.78 million
Filling out the Pro Forma Financial Statements
Dividend forecast: Payout will be 40% of Earnings Borrowing cost forecast: Same as present (4%)
Full-Information Forecasting: Nike
After reformulating Nike’s financial statements for 2004, an analyst prepares a forecast in order to value Nike’s shares. With a thorough
knowledge of the business, its customers and the outlook for athletic and fashion footwear, he first prepares a sales forecast. Then,
understanding the production process and the components of cost of good sold, he forecasts how much gross margin will be earned from sales.
Adding forecasts of expense ratios – particularly the all-important driver, the advertising-to-sales ratio – he finalizes his pro forma income
statements with a forecast of operating income. His forecasted balance sheet models accounts receivable, inventory, PPE, and other net
operating assets based on his assessment of turnover ratios for these items. He arrives at the following forecasts:

Income statement forecasts:

1. Sales for 2005 will be $13,500 million, followed by $14,600 for 2006. For 2007-2009, sales are expected to grow at a rate of 9 percent
per year.
2. The gross margin of 42.9 percent in 2004 is expected to increase to 44.5 percent in 2005 and 2006 as benefits of off-shore
manufacturing are reaped, but decline to 42 percent in 2007 and subsequently to 41 percent as labor costs increase and more costly,
high-end shoes are brought to market.
3. Advertising, standing at 11.25 percent of sales in 2004, will increase to 11.6 percent of sales to maintain the ambitious sales growth.
The recruitment of visible sports stars to promote the brand will also add to advertising costs.
4. Other before-tax expenses are expected to be 19.6 percent of sales, the same level as in 2004.
5. The effective tax rate on operating income will be 34.6 percent.
6. No unusual items are expected or their expected value is zero.

Balance sheet forecasts:

1. To maintain sales, the carrying value of inventory will be 12.38 cents per dollar of sales (an inventory turnover ratio of 8.08).
2. Receivables will be 16.5 cents per dollar of sales (a turnover ratio of 6.06)
3. PPE will fall to 12.8 cents per dollar of sales in 2005 and 2006, from the 13.1 cents in 2004, because of more sales from existing plant.
However, with new production facilities coming on line, at higher construction costs, to support sales growth, PPE will increase to
13.9 cents on a dollar of sales (a turnover ratio of 7.19).
4. The holdings of all other net operating assets, dominated by operating liabilities, will be -6.0 percent of sales.
5. A contingent liability for the option overhang of $452 million is recognized (as calculated in Chapter 13).
Full-Information Forecasting: Nike (cont.)
With these forecasts the analyst developed the following pro forma financial statements and valuation:

2004A 2005E 2006E 2007E 2008E 2009E

Income Statement
Sales 12,253 13,500 14,600 15,914 17,346 18,907
Cost of sales 7,001 7,492 8,103 9,230 10,234 11,155
Gross margin 5,252 6,008 6,497 6,684 7,112 7,752

Advertising 1,378 1,566 1,694 1,846 2,012 2,193

Operating expenses 2,400 2,646 2,862 3,119 3,400 3,706
Operating income before tax 1,474 1,796 1,941 1,719 1,700 1,853
Tax at 34.6 % 513 621 672 595 588 641
Operating income after tax 961 1,175 1,269 1,124 1,112 1,212

Core profit margin 7.84% 8.69% 8.69% 7.06% 6.41% 6.41%

Full-Information Forecasting: Nike (cont.)
Balance Sheet
Accounts receivable 2,120 2,228 2,409 2,626 2,862 3,120
Inventory 1,634 1,671 1,807 1,970 2,147 2,341
PPE 1,587 1,728 1,869 2,212 2,411 2,628
Other NOA (790) (810) (876) (955) (1,041) (1,134)
Net operating assets 4,551 4,817 5,209 5,853 6,379 6,955

Asset turnover (ATO) 2.803 2.803 2.719 2.719 2.719

Operating income 1,175 1,269 1,124 1,112 1,212

Change in NOA 266 392 644 526 576
Free cash Flow 909 877 480 586 636

RNOA (on beginning NOA) 25.82% 26.34% 21.58% 19.00% 19.00%

ReOI (8.6 % required return) 783.6 854.7 676.0 608.6 663.4
Present Value (PV) of ReOI 721.5 724.7 527.8 437.5 439.2
Total PV to 2009 2,851
Continuing Value (CV)* 12,809 19,349
Enterprise value 20,711
Net financial assets 289
20,500
Option overhang 452
Value of common equity 20,048

$
Value per share on 263.1 million shares: 76.20

663.4 x 1.05
* CV = = 19,349
1.086− 1.05
A Forecasting Template
1. Forecast sales
2. Forecast ATO and calculate NOA
NOA=sales/ATO
3. Revise sales forecast for asset constraints
4. Forecast Core PM and calculate Core OI
Core OI = Sales x Core PM
5. Forecast Other Core OI and total Core OI
Core OI = Core OI from sales + Other Core OI
6. Forecast unusual operating items
7. Calculate ReOI and AOIG
1. Oit = Core OIt + UIt
2. ReOIt = OIt - (F - 1) NOAt-1
3. AOIGt = ΔReOIt
8. Calculate Free Cash Flow
C − I  OI − NOA
A Forecasting Template (cont.)
9. Forecast net dividend payout

10. Calculate financial expenses (or income)

NFEt = (D −1)NFOt −1
11. Update net financing position
NFOt = NFE t + d t − (C − I)t
12. Calculate comprehensive earnings
Earnings t = OI t - NFE t
13. Calculate common stockholders’ equity
CSE t = NOAt - NFOt = CSE t-1 + Earningst - d t
14. Adjust the valuation for stock option overhang (Chapter 13)

15. Adjust for any value for noncontrolling interests

• Steps 1-6 and step 9 and 10 require forecasting

• All other forecasts are calculations from forecasted amounts using accounting relations
• Only steps 1-7 are necessary for valuation (without stock options)
Checking Pro Forma Analysis
a. Make sure CSE reconciliations in Step 13 agree

b. Check common size analysis against industry

norms. Are differences reasonable?

c. Watch for financial asset build up. What will the

firm do with the build-up?
Features of the OI Valuation Approach
1. It is efficient: forecast five factors
a. Sales
b. Core PM
c. ATO
d. Other Core OI
e. Unusual Items
2. Focuses on the part of the business that adds value: the operations
3. Dividends are irrelevant
4. Financing is irrelevant
5. Zero NPV (zero ReOI) investments don’t affect the valuation
6. Value-generating investments are identified
7. Avoids problems of the discount rate changing as leverage changes
Mergers and Acquisitions Involving Share Issues
Mergers and Acquisitions often involve share issues

• Residual earnings valuation cannot be done by forecasting per-share

amounts if shares outstanding are likely to change
• Always carry out residual earnings valuations on a dollar basis, then divide by current
shares outstanding
• Abnormal Earnings Growth (AEG) valuation can be carried out by forecasting
per-share earnings and dividends
• However, must then work on a levered basis (requiring changes in the cost of equity
capital)
• Best to work with operations on a dollar basis

16-64
Valuation with an Anticipated Acquisition:
Dealing with Value Received in the Exchange Ratio

16-65
Financial Statement Indicators
1. Current RNOA different from the past

2. Components of RNOA different from the

past

• Analyze the determinants of the current ΔRNOA:

RNOA = (Core PM  ATO) + (ATO  Core PM ) + (UI NOA)

• Δ in Core PM is particularly important

3. RNOA different from industry mean

• RNOAs tend to revert towards industry averages

16-66
Financial Statement Indicators (cont.)
4. Components of RNOA different from industry mean
PM components:
• Cost of sales/Sales
• Advertising/Sales
• G & A expenses/Sales
• R & D /Sales

ATO components
• Inventories/Sales
• Accounts receivables/Sales
• Doubtful debts/Sales
• PPE/Sales
• …

5. Changes in RNOA components different from industry mean

6. Changes in capital expenditures different from industry mean

Combine investigation with Quality of Earnings Analysis (Chapter 17).

Indicators Outside Financial Statements
• Firm specific indicators
• Non-working assets
• Order backlog
• Per-unit sales prices
• R&D success
• Firms’ investment plans
• Change in labor force
• Management discussion and analysis
• Insider trading
• Contingent liabilities (see footnotes)
Red Flag Indicators
• Slower sales growth

• Declines in order backlog

• Increasing Accounts Receivable/Sales

• Increasing Inventory/Sales

• Deterioration in Gross margin/Sales

• Increasing Selling and Administrative Expenses/ Sales

• Low effective tax rates

• Large non-recurring items

• Increases in dilutive securities: executive stock options

• Build up of financial assets

Business Strategy and Pro Forma Analysis
The same apparatus serves strategy analysis

• Five steps of fundamental analysis are the five steps of strategy analysis

• The focus:
• Sales growth
• Operating profit margins
• Asset turnovers

• Pro forma financial statement analysis articulates strategy

• Beware of unarticulated strategy fads

Scenario Analysis
• Re-run the pro forma for different scenarios and estimate value under different
scenarios. For example,

--- Alternative sales growth forecasts

--- Alternative profit margin and profit margin fade patterns
--- Alternative asset turnovers

• Re-run with different required returns

Risk Analysis
• Use scenario analysis to model your uncertainty

Chapter 19 take pro forma analysis to the analysis of risk

QUESTIONS?
CODE: