FSA Exercises

Exercise 3
The operating income of a firm in 2018 was 200,000 DKK, and the depreciation expense was 20,000 DKK. It
had the following changes in its balance sheet, please calculate its cash flow from operating activities in
2018.

2017 2018

Inventory 4,000 8,500

Account receivable 1,000 7,200

Account payable 6,500 1,300

Calculating cash flow from operating activities using the indirect method, you start with the
operating income and adjust for non-cash expenses and changes in working capital.
Operating income = 200.000 DKK
Depreciation = 20.000 DKK
Adj. operating income = 200.000 + 20.000 = 220.000 DKK
Adjusting for net working capital:
Inventory + accounts receivable - accounts payable.
200,000+20,000-(8,500-4,000)-(7,200-1,000)+(1,300-6,500)=204,100

Exercise 4
4.1 The income statement of the Lego group in 2017 and 2016 is shown below. Please transform
Lego’s income statement in 2017 for analytical purposes.
Analytical income statement:
Revenue = 34995
Operating expenses = (-10.239)+(-10208)+(-2.352)+(-1.837)= -24.636
EBIT = 10.359
Tax rate = 2.395/10.201 = 0,2348  23,48%
NOPAT = EBIT*(1-tax rate) = 10.359*(1-0,2348) = 7.926,7
NFE = -171+13 = -158
NFE after tax =-158*(1-0,2348) = 120,9
Net earnings = 7806

4.2 Please reformulate Scanpack AB’s balance sheets for analytical purposes and also prepare its
analytical income statement for 2017. Please keep zero decimal for the number calculated in the
financial statements.
Operating assets = 10553
Operating liabilities = 3668
Invested capital = 10553-3668 = 6885
Exercises for Chapter 5

Suppose you work as a financial analyst at a bank, and one of your assignments is to conduct financial
statement analysis for a pharmaceutical company, which produces medicines to cure arthritis. This
company’s income statement (2018) and balance sheet (2017 and 2018) are shown in the enclosed Excel
spreadsheet.

Your boss knew that you have taken the Financial Statement Analysis course, and he asked you to prepare
the analytical income statement and the analytical balance sheet. Assume that this pharmaceutical
company holds cash for financing rather than operating.

Analytical Income statement

Revenue = 13.257
Operating expenses = (-4.345)+(-641)+(-2.081)= 7.067
EBIT = 3.205
Tax rate = 794/3331= 23,8%
NOPAT = 3205*(1-23,8%) = 2.442
NFE =141-15= 126
NFE after tax = 126*(1-23,8) = 96

Analytical Balance
Total assets = 14013
Operating assets = total assets – cash – securities = 10.687
Operating liabilities = non-current liabilities + current liabilities = 585+4858=5.244
Invested capital = 10.687-5.244= 5.443

Please calculate the following financial ratios for 2018. For the ratios that are based on balance sheet
numbers, please use the value of beginning balance. Please keep two decimals for the results.

· Profit margin
· Turnover of invested capital
· Return on invested capital

Profit margin (2018) = NOPAT /revenue = 2.442/13.257 = 0,18 = 18%

Turnover (ATO (2018) = Revenue / invested capital = 13.257/6.172 =2,15
ROIC (2018) = NOPAT/Invested Capital = 2.442/6.172 = 0,40 = 40%

Suppose that the cost of capital for operations (i.e., WACC) is estimated to be 8%, please calculate the
economic value added in 2018. Please keep zero decimal for the results.

EVA = (NOPAT-Invested Capital) * WACC = 2.441-6.172*8%= 1.947

Exercise 6

Martin is good at printing, so at the beginning of 2017 he started a company, the PRINTTASK CITY, which
performs large printing services for companies. He asked you to help him with a few tasks related to the
financial analysis of the company. The original income statement and the balance sheet are attached.
Prepare an analytical income statement for the PRINTTASK CITY.

Please provide an analytical balance sheet for the PRINTTASK CITY. You can assume that all cash is excess
cash, i.e. part of financing assets.

Calculate the PRINTTASK CITY’s return on invested capital, the profit margin, the turnover rate of invested
capital, and the return on equity. Please keep four decimals for the results.

Suppose Martin took 300 Euros as dividends, please calculate this company’s sustainable growth rate in the
future. Please keep four decimals for the result.

Analytical income statement

Revenue =13.500
TAX rate = 225/900 = 25%
NOPAT = 1.500*(1-0,25)= 1.125
NFE = - 600
NFE after tax= -600*(1-0,25) = -450

Analytical Balance
Invested capital = 25.675-7.800-3.000= 14.875

Return on invested capital = NOPAT/Invested capital

= 1125/14875 =0.0756  7,5630%
Profit margin = NOPAT/Revenue1.125/13.500=0.0833=8.33%

Turnover of invested capital= revenue/invested capital = 13.500/14.875=0.9076

Return on equity= net earnings/total equity = 675/10675=0.0632=6.32%

Sustainable growth rate= ROE*(1–PO) = 0.0632*(1-300/675) =0.0351=3.51%

Exercises for Chapter 7

Suppose you work in the accounting department in a fashion company in Denmark, and your company is
considering having a joint venture with a leading fashion company from Sweden. You are assigned to lead
this project and analyze this Swedish company’s financial situation. The original income statement and
balance sheet of this Swedish company are attached. It is also known that this company’s cash flow from
operations in 2019 was 5,823 Million SEK. Please keep three decimals for the results.

Calculate the financial leverage of this Swedish fashion company.

Calculate this company’s current ratio.
Assess whether this company’s cash flow from operations was enough for it to repay liabilities.

Financial leverage = total liabilities/equity

=46,849/59,713=0.785

Current ratio = current assets/current liabilities

=55,746/40,723=1.369

CFO to debt ratio = Cashflow from operations/total liabilities

=5,823/46,849=0.124<0.2, which was not enough.

Exercises for Chapter 8

1. In this link, you will find a firm’s initial financial statements in year zero and the forecasting for year
one. Please fill in the pro forma statements for year one based on all the available information.
Hint: For the connection between accounts in the pro forma statements, please check Table 8.1 on
the textbook or the related information on the slides.

2. In 2018, a financial institute was considering investing in a German fashion company. After talking
with a professional consulting company, it got the forecasting for a series of value drivers for this
German fashion company (shown in this link). The financial situation of this German fashion
company in 2018 was as follows: its sales revenue was 23,678 million Euros, and its invested capital
was 6,690 million Euros. Based on the above information, please predict this German fashion
company’s free cash flow to the firm in 2019-2023.
 Forecast period
Value drivers 2019 2020 2021 2022 2023
Revenue growth 4,00% 3,00% 3,00% 3,50% 3,50%
EBITDA margin 15,00% 16,00% 15,50% 16,10% 15,80%
Depreciation / Tangible non-current operating assets 6,00% 6,10% 6,10% 6,00% 6,10%
Amortization / Intangible non-current operating assets 4,00% 4,20% 4,30% 4,10% 4,20%
Tangible non-current operating assets / Revenue 20,00% 20,00% 20,00% 20,00% 20,00%
Intangible non-current operating assets / Revenue 3,00% 3,20% 2,80% 3,00% 3,00%
Net working capital / Revenue 5,00% 5,00% 5,00% 5,00% 5,00%
Tax rate 22,00% 22,00% 22,00% 22,00% 22,00%

2018 2019 2020 2021 2022 2023

Revenue 23.678 24.625 25.364 26.125 27.039 27.986 1
EBITDA 3.694 4.058 4.049 4.353 4.422 2
Depriciation 296 309 319 324 341 5
Amortasation 30 34 31 33 35 6
EBITDA 3.369 3.715 3.699 3.996 4.045 7
TAX -741 -817 -814 -879 -890 8
NOPAT 2.628 2.897 2.885 3.117 3.155 9

Tangible 4.925 5.073 5.225 5.408 5.597 3

intantible 739 812 731 811 840 4
NWC 1.231 1.268 1.306 1.352 1.399 10
Invested Capital 6.690 6.895 7.153 7.263 7.571 7.836 11

FCFF 2.423 2.640 2.775 2.808 2.890 12

(NOPAT - ΔInvested capital)

FCFF = NOPAT – change in invested capital

Exercises for Chapter 9

The Fish Loving Ltd. produces and sells fish feed in the European market. The following table shows its key
financials. You can find the condensed income statements and balance sheets; the WACC is also given for
each year.

Assume that the revenue of this company would increase by 2% per year after 2017, which would lead to
the constant growth of dividend with 2% per year. Assume that the WACC in all the future years would be
the same as the one for 2016. The dividend in 2017 was expected to be 394,307.76. Based on the
discounted cash flow model, an analyst estimated the Fish Loving Ltd.’s enterprise value in 2016 to be
10,251,401.
Given the above information, please calculate the required rate of return on equity that yields the same
valuation.

EV = market value equity - NIBL

NIBL=450.428-285.520 = -164.908

Equity value=10.251.401-(-164.908)=10.251.401+164.908= 10.416.309

DDM: Po = (div)/(re)+g

re= (div)/(p0)+g

re= 2% + 394.307,76/10.416.309=0.0579=5.79%

In 2018, a financial institute was considering investing in a German fashion company. The financial situation
of this German fashion company in 2018 was as follows: its sales revenue was 23,678 million Euros, and its
invested capital was 6,690 million Euros. The consulting company suggested you get inspiration from
industry peers, and it showed the information about industry peers in this link. The consulting company
claimed that the industry average ratio of enterprise value to EBIT would be a reliable predictor for the
value of this German fashion company. You also knew that the EBIT margin of this German fashion
company in 2018 was 12.5%, and net interest-bearing liabilities accounted for 40% of invested capital in
2018. What is the implied market value of equity in 2018 based on the above information? Please keep two
decimals for the results.

Peer A Peer B Peer C Peer D Peer E

EBIT 1,030 1,999 3,500 2,432 2,531
Enterprise
value 30,900 57,971 98,000 77,824 88,585

revenue was 23,678 million Euros

invested capital was 6,690 million Euros

EBIT margin 12,5%

EBIT = Revenue*(ebitmargin)= 23,678*12,5%

Average EBIT/EV ratio = 30,74

EV = 23,678*12,5%*30,74

Market value equity = 23,678*12.5%*30,80-6,690*40%=88,484.30

Exercise Chapter 10

In 2015, a private company was considering an IPO, thus it was interested in its enterprise value. The
following information in 2012-2015 was given:
Its invested capital in 2016 was predicted to be 104,427,763, and the NOPAT in 2016 was predicted to be
12,692,635. The firm also predicted that a growth rate of 2% in all the items of balance sheet and income
statement would be observed after 2016. The weighted average cost of capital in 2012-2015 was 7.86%,
and the one since 2016 was expected to be the same.

Given the above information, please estimate its enterprise value at the end of 2015 based on the
discounted cash flow model.

FCFF = NOPAT - Increase in NWC (invested capital – NOA)

= 12.692.635-(104.427.763-102.380.160) = 10.645.032

Discount factor = WACC - g = 7.86%-2%

EV = FCFF/(WACC-g) = 12.692.635-(104.427.763-102.380.160))/ (7.86%-2%) =181.655.836

Exercises for Chapter 11

A Danish company, Matas A/S, is listed on the Nasdaq OMX. The attached Excel file contains the financial
information of Matas. The fiscal year of Matas differs from its calendar year, and it runs from April 1st to
March 31st of next year. Accordingly, the fiscal year 2015, for instance, refers to the year ending on March
31st of 2016.

Suppose you work as a financial analyst following Matas, and you have the following task to complete.
You plan to implement a credit analysis for Matas based on the Altman Z-score. In the fiscal year 2009-
2012, Matas was not listed, and thus the information on share price was not available. For these years, we
assume that its share price was 150 DKK per share (see Excel sheet “Share price” for other years). Note that
the net working capital in Altman Z-score can be directly calculated as current assets minus current
liabilities. Please keep one decimal for accounts and three decimals for the Z-score.
FY 2009 2010 2011 2012 2013 2014 2015
Total assets 5.982 5.640 5.582 5.755 5.472 5.319 5.299
NWC 513 70 198 281 135 31 27
Retained Earnings -154 -12 208 471 721 840 907
EBIT 348 405 455 457 464 526 514
Market value equity 6.120 6.120 6.075 6.075 6.186 6.383 5.214
Sales 2.948 2.992 3.097 3.200 3.345 3.433 3.426
Book value of liabilities 4280,9 3763,4 3485,9 3395,2 2871,8 2675,3 2641,0

Working capital/total assets 0,086 0,012 0,035 0,049 0,025 0,006 0,005
retained earnings/total assets -0,026 -0,002 0,037 0,082 0,132 0,158 0,171
EBIT/total assets 0,058 0,072 0,082 0,079 0,085 0,099 0,097
Market value equity/book value liabilities 1,430 1,626 1,743 1,789 2,154 2,386 1,974
Sales/total assets 0,493 0,530 0,555 0,556 0,611 0,646 0,647

Total Assets = given

NWC = current assets-current liabilities
Retained earnings = given
EBIT = given
Market value equity = share price * shares outstanding
Sales = given
Book value of liability = non-current liability + current liability

Exercises for Chapter 12

Suppose that you got a job as a financial analyst. One of your first assignments was to conduct a financial
statement analysis for a pharmaceutical company that produces medicines to cure arthritis. Based on the
reported income statement and balance sheets, you knew that, at the end of fiscal year 2018, the book
value of this firm’s equity was 9370 and net financing assets were 3137 (i.e., net interest-bearing liabilities
were -3137), the sale revenue was 13257, and the EBIT was 3205.

One of your colleagues had deep knowledge on the pharmaceutical industry. She forecasted the value
drivers in the spreadsheet. The cost of capital for operations (i.e., WACC) was estimated to be 8%. Based on
the information of industrial peers, this colleague estimated the reasonable EV/EBIT ratio to be 20.53.

Question: What was the long-run constant growth rate of EVA in the terminal period implied by the above
EV/EBIT ratio? Please keep zero decimal for accounts and keep three decimals for discount factors and the
results.
 2018 2019 2020 2021 2022 2023
Sales growth 13257 5% 4% 3% 3% 3%
EBIT-Margin 3205 25% 25% 24% 24% 24%
TAX rate 23% 23% 23% 23% 23%
NWC% -12% -10% -6% -6% -6%
NCA% 60% 61% 62% 62% 62%

Revnue 13.920 14.477 14.911 15.358 15.819

EBIT 3.480 3.619 3.579 3.686 3.797
TAX -800 -832 -823 -848 -873
NOPAT 2.680 2.787 2.756 2.838 2.923
NWC -1.670 -1.448 -895 -921 -949
NCA 8.352 8.831 9.245 9.522 9.808
Invested capital 6.682 7.383 8.350 8.601 8.859

EVA 2.145 2.196 2.088 2.150 2.215

Discount factor 0,926 0,857 0,794 0,735
PV of EVA 1.986 1.883 1.657 1.580
Sum of PV EVA 7.107

Revenue = Revenue*sales growth

EBIT = revenue*EBIT margin =13.920*25%=3.480
NOPAT = EBIT*(1-23%)
NWC = -12% of revenue
NCA = 60% of revenue
Invested Capital= NCA-NWC
EVA = NOPAT- (WACC*invested capital)
Discount factor = (1+WACC)^-1 = (1+8%)^-1 = 0,926

EV = 3205*20,53= 65798.65
Enterprise value 3205*20.53 = (9370-3137) + 7264+ 2235 / (8%-g) *0.735

→ g = 8%- (2235*0.735)/ (3205*20.53 - (9370-3137) -7264) = 0.049 or 4.9%