Topic #1: Forecasting

Financial Statements and Free

Cash Flows

Principles of Finance with Excel Modeling

L. Gattis

Textbook:
2nd Edition: Chapter 1, Chapter 7 (7.1 - 7.4)
in Principles of Finance with Excel
3rd Edition: Chapter 1 (3rd Edition does not
include the Whimsical Toenails Example) 1
Learnings Objectives
• Design financial models using appropriate styles and organization
• Forecast an income statement and balance sheet
• Compute free cash flows for the firm (FCFF)
• Perform financial statement analysis (ratios, growth rates)

2
Forecasting EBITDA
• Earnings before interest taxes depreciation and amortization (EBITDA)
is a measure of performance before the effects of financing, taxes,
accounting, and investment decisions
• Suppose Whimsical Toenails (textbook example) had sales of $10M
last year and operational expenditures (OpEx) of $5M (50% of sales).
What is EBITDA if sales grow by 10% and OpEx as a percent of sales
remains 50%?
• Build a financial model using the following Excel best practices

3
 Forecasting EBITDA
Excel best practices
1. Put all the important variables (“value
Value Drivers drivers”) at the top of your worksheet
OpEx % of Sales 50.0% 2. Never use a number if a formula will
Sales Growth 10.0% also work
3. Never, ever, ever combine a number
Historical Forecast
Sales $10,000,000 $ 11,000,000 and a formula (.15*A3)
OpEx $5,000,000 $ 5,500,000 4. Appropriately use labels, annotations,
EBITDA $5,000,000 $ 5,500,000 sources, assumptions and comments
so others can use your models
5. Use default Excel Styles (Especially the
INPUT style)
4
 WHIMSICAL TOENAILS (modified example from textbook)
Value Drivers
2nd Edition

Start File: 1 Pass

Year 0 Year 1

st
Sales growth N/A 10.00% Forecast from Marketing
Accounts Receivable & Inventory /Sales 15.00% 15.00%
Accounts Payable/Sales 8.00% 8.00%
OpEx / Sales 50.00% 50.00%
Interest rate on average debt balance 10.00% 10.00%
Interest earned on on average cash balance 8.00% 8.00%
Tax rate 40.00% 40.00%

• Whimsical Toenails (from

CAPEX N/A $1,668,420 Forecast from Manuacturing and Supply Chain
CAPEX Depreciation Straight Line Life (Yrs) N/A 10.00 Forecast from Accounting
Financial Policy Assumptions Year 0 Year 1

textbook) earned $2.246M in Dividend Payout %

Cash Balance Change
Debt Balance Change (neg is debt retire)
40.00%
N/A
N/A
$
$
40.00%
-
-
Set to initial values of $.01 to use goal seek to set AFN = 0

profits last year (Year 0) Stock Balance Change (neg is buyback)

Stock Price (End of Year 0, Assume no change) $
N/A
10.00
$
$
-
10.00 Assume no change for simplicity
Note: Additional Funds Needed (Excess Funds) (198,422)

• What are profits next year if: Income statement

Sales "Top Line"
Year 0
10,000,000
Year 1 Forecast Formulas
Prior Year's Sales * (1 + sales growth rate)

• Sales grow by 10%, and

Costs of goods sold and G&A "OpEx" 5,000,000 Sales * OpEx%
EBITDA: Sales - COGS 5,000,000 -
Depreciation Expense 1,000,000 Change in B/S Accumulated Depreciation
CAPEX=$1,668,420 depreciated EBIT "Operating Profit": EBITDA - Deprec.
Interest payments on debt
4,000,000
320,000
-
Avg Debt * Interest on Debt %
over 10 years Interest earned on cash and cash equiv.
EBT: EBIT - Net Interest
64,000
3,744,000 -
Avg Cash and Equiv * Interest on Cash %

• All other income statement and

Taxes 1,497,600 EBT * Tax Rate
EAT "Net Income", "Bottom Line": EBT - Tax 2,246,400 -
Dividends 898,560 EAT * Dividend Payout %
balance sheet relationships remain Additions to Retained earnings: EAT - Div 1,347,840
Balance sheet Year 0 Year 1
the same Cash and Cash Equivalents
Accounts Receivable & Inventory
800,000
1,500,000
800,000 Prior Cash + Change in Cash
Sales * (A/R & Inv / Sales %)

• First Pass: No change in cash, debt, Fixed Assets At Cost

Accumulated Depreciation
10,700,000
3,000,000
12,368,420
4,166,842
Prior Net Fixed Assets + CAPEX
Prior Accum Depreciation + Prior Dep Exp + CAPEX / Deprec. Lif

or stock Net Fixed Assets

Total assets
7,700,000
10,000,000
8,201,578
9,001,578
Net Fixed Assets - Depreciation

Accounts Payable 800,000 Sales * (A/P / Sales %)

• Build pro forma financial Debt

Total Liabilities
Stock
3,200,000
4,000,000
4,500,000
3,200,000
3,200,000
4,500,000
Prior Debt + change in debt

Prior Equity + change in equity

statements Accumulated retained earnings

Total Equity
1,500,000
6,000,000
1,500,000
6,000,000
Prior R/E Balance + Additions to R/E

Total Liabilities and Equity 10,000,000 9,200,000

Additional Funds Needed (Excess Funds) - (198,422) Must Be Zero
Shares 1,000,000 1,000,000
5
Last years shares + change in equity / stock price
 WHIMSICAL TOENAILS (modified example from textbook)

Solution: 1 Pass
Value Drivers Year 0 Year 1

st Sales growth
Accounts Receivable & Inventory /Sales
N/A
15.00%
10.00% Forecast from Marketing
15.00%
Accounts Payable/Sales 8.00% 8.00%
OpEx / Sales 50.00% 50.00%
Interest rate on average debt balance 10.00% 10.00%
Interest earned on on average cash balance 8.00% 8.00%
Tax rate 40.00% 40.00%

• The balance sheet is not balanced! CAPEX

CAPEX Depreciation Straight Line Life (Yrs)
N/A
N/A
$1,668,420 Forecast from Manuacturing and Supply Chain
10.00 Forecast from Accounting
Financial Policy Assumptions Year 0 Year 1
(Assets ≠ L&E) Dividend Payout %
Cash Balance Change
40.00%
N/A $
40.00%
- Set to initial values of $.01 to use goal seek to set AFN = 0

• L&E is the source of funding for assets. Debt Balance Change (neg is debt retire)
Stock Balance Change (neg is buyback)
N/A
N/A
$
$
-
-

L&E must equal Assets. Stock Price (End of Year 0, Assume no change)
Note: Additional Funds Needed (Excess Funds)
$ 10.00 $ 10.00 Assume no change for simplicity
(896,199)

• if Assets > L&E: funds are needed, the Income statement

Sales "Top Line"
Year 0
10,000,000
Year 1
11,000,000
Forecast Formulas
Prior Year's Sales * (1 + sales growth rate)
Costs of goods sold and G&A "OpEx" 5,000,000 5,500,000 Sales * OpEx%
firm could make these financing EBITDA: Sales - COGS 5,000,000 5,500,000
Depreciation Expense 1,000,000 1,166,842 Change in B/S Accumulated Depreciation
decisions: EBIT "Operating Profit": EBITDA - Deprec. 4,000,000 4,333,158
Interest payments on debt 320,000 320,000 Avg Debt * Interest on Debt %
• Issue debt Interest earned on cash and cash equiv. 64,000 64,000 Avg Cash and Equiv * Interest on Cash %
EBT: EBIT - Net Interest 3,744,000 4,077,158
• Issue stock Taxes 1,497,600 1,630,863 EBT * Tax Rate
EAT "Net Income", "Bottom Line": EBT - Tax 2,246,400 2,446,295
• Decrease dividend payout Dividends
Additions to Retained earnings: EAT - Div
898,560
1,347,840
978,518
1,467,777
EAT * Dividend Payout %

• Decrease cash balance Balance sheet Year 0 Year 1

Cash and Cash Equivalents 800,000 800,000 Prior Cash + Change in Cash
• If Assets < L&E: There are Excess funds Accounts Receivable & Inventory
Fixed Assets At Cost
1,500,000
10,700,000
1,650,000
12,368,420
Sales * (A/R & Inv / Sales %)
Prior Net Fixed Assets + CAPEX

• Retire (payoff) debt Accumulated Depreciation

Net Fixed Assets
3,000,000
7,700,000
4,166,842
8,201,578
Prior Accum Depreciation + Prior Dep Exp + CAPEX / Deprec. Li
Net Fixed Assets - Depreciation

• Buyback Stock Total assets

Accounts Payable
10,000,000
800,000
10,651,578
880,000 Sales * (A/P / Sales %)

•
Debt 3,200,000 3,200,000 Prior Debt + change in debt
Increase dividend payout Total Liabilities 4,000,000 4,080,000
Stock 4,500,000 4,500,000 Prior Equity + change in equity
• Increase cash balance Accumulated retained earnings 1,500,000 2,967,777 Prior R/E Balance + Additions to R/E
Total Equity 6,000,000 7,467,777
Total Liabilities and Equity 10,000,000 11,547,777
Additional Funds Needed (Excess Funds) - (896,199) Must Be Zero 6
Shares 1,000,000 1,000,000 Last years shares + change in equity / stock price
 WHIMSICAL TOENAILS (modified example from textbook)
Value Drivers Year 0 Year 1

Financing Decisions
Sales growth N/A 10.00% Forecast from Marketing
Accounts Receivable & Inventory /Sales 15.00% 15.00%
Accounts Payable/Sales 8.00% 8.00%
OpEx / Sales 50.00% 50.00%
Interest rate on average debt balance 10.00% 10.00%
Interest earned on on average cash balance 8.00% 8.00%
Whimsical has chosen the following financing Tax rate
CAPEX
40.00%
N/A
40.00%
$1,668,420 Forecast from Manuacturing and Supply Chain
decisions: CAPEX Depreciation Straight Line Life (Yrs) N/A 10.00 Forecast from Accounting
Financial Policy Assumptions Year 0 Year 1

• Pay down debt of $800,000 to reduce financial Dividend Payout %

Cash Balance Change
40.00%
N/A $
40.00%
(90,707) Set to initial values of $.01 to use goal seek to set AFN = 0
Debt Balance Change (neg is debt retire) N/A $ (800,000)
risk Stock Balance Change (neg is buyback) N/A $ (200,000)
Stock Price (End of Year 0, Assume no change) $ 10.00 $ 10.00 Assume no change for simplicity
• Buy back (repurchase) stock of $200,000 at $10 Note: Additional Funds Needed (Excess Funds) -
Forecast Formulas
Income statement Year 0 Year 1
per share to return cash to shareholders and Sales "Top Line"
Costs of goods sold and G&A "OpEx"
10,000,000
5,000,000
11,000,000
5,500,000
Prior Year's Sales * (1 + sales growth rate)
Sales * OpEx%
increase EPS EBITDA: Sales - COGS
Depreciation Expense
5,000,000
1,000,000
5,500,000
1,166,842 Change in B/S Accumulated Depreciation
• Why not just pay a larger dividend? EBIT "Operating Profit": EBITDA - Deprec.
Interest payments on debt
4,000,000
320,000
4,333,158
280,000 Avg Debt * Interest on Debt %

• Adjust the cash balance to “balance the B/S” as Interest earned on cash and cash equiv.
EBT: EBIT - Net Interest
64,000
3,744,000
60,372
4,113,530
Avg Cash and Equiv * Interest on Cash %

Taxes 1,497,600 1,645,412 EBT * Tax Rate

long as it does not fall below a minimum of EAT "Net Income", "Bottom Line": EBT - Tax 2,246,400 2,468,118
Dividends 898,560 987,247 EAT * Dividend Payout %
$200,000 – if it does, reevaluate debt and equity Additions to Retained earnings: EAT - Div 1,347,840 1,480,871

decisions Balance sheet

Cash and Cash Equivalents
Year 0
800,000
Year 1
709,293 Prior Cash + Change in Cash
Accounts Receivable & Inventory 1,500,000 1,650,000 Sales * (A/R & Inv / Sales %)
“Plugging Cash using Excel” Fixed Assets At Cost 10,700,000 12,368,420 Prior Net Fixed Assets + CAPEX

• Data, What-if, Goal Seek Accumulated Depreciation

Net Fixed Assets
3,000,000
7,700,000
4,166,842 Prior Accum Depreciation + Prior Dep Exp + CAPEX / Deprec. Lif
8,201,578 Net Fixed Assets - Depreciation

• Set AFN=0 by changing Cash Balance Change Total assets

Accounts Payable
10,000,000
800,000
10,560,871
880,000 Sales * (A/P / Sales %)

• Why do you need goal seek? Because changing cash, Debt

Total Liabilities
3,200,000
4,000,000
2,400,000 Prior Debt + change in debt
3,280,000

changes interest, which changes profits and R/E Stock

Accumulated retained earnings
4,500,000
1,500,000
4,300,000 Prior Equity + change in equity
2,980,871 Prior R/E Balance + Additions to R/E
which changes AFN – try an iterative process first Total Equity 6,000,000
10,000,000
7,280,871
10,560,871
Total Liabilities and Equity

• See that financial decisions don’t' affect FCFF Additional Funds Needed (Excess Funds)
Shares
-
1,000,000
- Must Be Zero 7
980,000 Last years shares + change in equity / stock price
Free Cash Flows

• Cash is King! The ultimate measure of any business is its ability generate cash (not
reported profits!). Free Cash Flow for the Firm (FCFF) is cash flow available to meet
reinvestment needs (CAPEX, Working Capital), meet debt obligations (interest and
principal), and return cash to shareholders (cash dividends or stock
repurchases/buybacks).
• FCFF = Accounting Profits plus the effects of depreciation, CAPEX, and non-cash
working capital. There are three methods to compute FCFF depending on the profit
starting point

Note: Non-cash working capital generally includes receivables, payables, and

inventory; and also often includes non-interest bearing other current assets and other
current liabilities. Cash is excluded because it is generally considered an investment –
not needed for customer and supplier payments.
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 FCFF – Three Methods
Non-Cash Working Capital (A/R + Inv - A/P) 700,000 770,000 Assumes Cash not needed for business operations
Year 1
EBIT x (1-Tax) = NOPAT 2,599,895 Starting with NOPAT
Add Back Depreciation 1,166,842 Non-cash Expense (tax impact on cash remains above)
Subtract CAPEX (or -chg in Fixed Assets at Cost) (1,668,420) Not Reported Cash Expense
Subtract Changes In Non-Cash W/C (70,000) Cash impact of inventory, receivables, payables growth
FCFF: NOPAT - Net Reinvestment 2,028,317

EBITDA x (1-Tax) = After Tax EBITDA 3,300,000 Starting with EBITDA

Add Back Depreciation Tax Shield 466,737 Depreciation Expense * Tax Rate
Subtract CAPEX (or chg in Fixed Assets at Cost) (1,668,420) Analysis:
Subtract Changes In Non-Cash W/C (70,000) FCFF are operating cashflows available to
FCFF 2,028,317 return to debt and equity holders.
Earnings after Tax 2,446,295 Starting with EAT
Whimsical earned sufficient FCFF to
Add Back Depreciation 1,166,842
make its obligatory payment of $.3M
Subtract CAPEX (or chg in Fixed Assets at Cost) (1,668,420)
Subtract Changes In Non-Cash W/C (70,000)
interest expense.
Add Back After-Tax Interest On Debt 192,000 Interest is not operating income
Subtract After-Tax Interest on Cash (38,400) Interest is not operating income
FCFF 2,028,317

Net CAPEX (CAPEX - Depreciation Expense) 501,578 Positive for growing firms (more than replacing assets)
Net Reinvestment (Net CAPEX + Changes in NCWC) 571,578 Total Firm CF reinvested
Quick FCFF Calculation: EBIT*(1-t)-Net Reinv. 2,028,317 9
 Ratio Analysis and Common Sized Financial
Common Sized Financials Year 0 Year 1 Change
Sales "Top Line" 100.0% 100.0%
Costs of goods sold and G&A "OpEx" 50.0% 50.0% 0.0%
EBITDA: Sales - COGS 50.0% 50.0% 0.0%
Depreciation Expense 10.0% 10.6% 0.6%
Net income increasing due to increase in level of
EBIT "Operating Profit": EBITDA - Deprec. 40.0% 39.4% -0.6% sales, and reduction in interest expense on
Interest payments on debt 3.2% 2.5% -0.7% debt, which was partially offset by an increase in
Interest earned on cash and cash equiv. 0.6% 0.5% -0.1%
depreciation of new CAPEX
EBT: EBIT - Net Interest 37.4% 37.4% 0.0%
Taxes 15.0% 15.0% 0.0%
EAT "Net Income", "Bottom Line": EBT - Tax 22.5% 22.4% 0.0%
Dividends 9.0% 9.0% 0.0%
Additions to Retained earnings: EAT - Div 13.5% 13.5% 0.0%
Balance sheet Year 0 Year 1 Change
Cash and Cash Equivalents 8.0% 6.7% -1.3%
Accounts Receivable & Inventory 15.0% 15.6% 0.6% Reduction in cash offset by growth in net
Fixed Assets At Cost 107.0% 117.1% 10.1% fixed assets which was driven by CAPEX
Accumulated Depreciation 30.0% 39.5% 9.5%
Net Fixed Assets 77.0% 77.7% 0.7%
Total assets 100.0% 100.0%
Accounts Payable 8.0% 8.3% 0.3%
Debt 32.0% 22.7% -9.3%
Total Liabilities 40.0% 31.1% -8.9% Reduction in debt and stock offset by growth in
Stock 45.0% 40.7% -4.3% retained earnings
Accumulated retained earnings 15.0% 28.2% 13.2%
Total Equity 60.0% 68.9% 8.9%
Total Liabilities and Equity 100.0% 100.0% 10
 Ratio Analysis and Common Sized Financial
Financial Ratios and Analysis Year 0 Year 1 Discussion on Changes
Earnings Per Share $ 2.25 $ 2.52 EPS growing due to increased profits and reduced shares from buyback
Dividends Per Share $ 0.90 $ 1.01 DPS growing due to increased profits and reduced number of shares
Dividend Yield: Div. per Share / Share Price 8.99% 10.07% Growing profits, constant payout, and assumed constant stock price

Top Line Growth Rate N/A 10.0% Assumed 10% growth

Bottom Line Growth Rate N/A 9.9% Follows from above

ROE: EAT / Average Total Equity N/A 37.2%

ROA: EAT / Average Total Assets N/A 24.0%
Operarting Profit Margin: EBIT/Sales 40.0% 39.4%
Net Profit Margin: EAT/Sales 22.5% 22.4%
Market D/E: Book Debt / Market Capitaliz. 32.00% N/A
Times Interest Earned: EBIT/Interest Exp 12.50 15.48 Reduced debt and increased operating profit margin
Current Ratio: CA / CL 2.88 2.68
Price / Earnings Ratio (PE): Share Price/EPS 4.45 3.97 Increase in EPS and assumed no change in stock price

11
The Financial Analyst Interacts with the Entire Organization
Manuf/Engr Revenue Marketing The financial manager
Supply Chain - COGS, SG&A also ensures
H/R (Compens.) =EBITDA consistency: e.g., is
- Depreciation Accounting the CAPEX and
=EBIT related depreciation
- Interest Accounting consistent with sales
=EBT growth, opex, and
- Taxes Accounting overall corporate
= Net Income strategy and goals
Manuf/Engr CAPEX
Supply Chain Marketing (A/R)
ΔNWC
Supply Chain (A/P, Inventory)
12
Learnings Objectives
• Design financial models using appropriate styles and organization
• Forecast an income statement and balance sheet
• Compute free cash flows for the firm (FCFF)
• Perform financial statement analysis (ratios, growth rates)

Next Topic: Time Value of Money and Valuation

• Forecast multiple years of cash flows and compute the fundamental
value of a firm and stock

13
 WHIMSICAL TOENAILS (modified example from textbook)
Value Drivers Year 0 Year 1 Financial Ratios and Analysis Year 0 Year 1 Discussion on Changes
Sales growth N/A 10.00% Forecast from Marketing Earnings Per Share $ 2.25 $ 2.52 EPS growing due to increased profits and reduced shares from buyback

Final
Accounts Receivable & Inventory /Sales 15.00% 15.00% Dividends Per Share $ 0.90 $ 1.01 DPS growing due to increased profits and reduced number of shares
Accounts Payable/Sales 8.00% 8.00% Dividend Yield: Div. per Share / Share Price 8.99% 10.07% Growing profits, constant payout, and assumed constant stock price
OpEx / Sales 50.00% 50.00%
Interest rate on average debt balance 10.00% 10.00% Top Line Growth Rate N/A 10.0% Assumed 10% growth
Interest earned on on average cash balance 8.00% 8.00% Bottom Line Growth Rate N/A 9.9% Follows from above
Tax rate 40.00% 40.00%
CAPEX N/A $1,668,420 Forecast from Manuacturing and Supply Chain ROE: EAT / Average Total Equity N/A 37.2%
CAPEX Depreciation Straight Line Life (Yrs) N/A 10.00 Forecast from Accounting ROA: EAT / Average Total Assets N/A 24.0%

Worksheet
Financial Policy Assumptions Year 0 Year 1 Operarting Profit Margin: EBIT/Sales 40.0% 39.4%
Dividend Payout % 40.00% 40.00% Net Profit Margin: EAT/Sales 22.5% 22.4%
Cash Balance Change N/A $ (90,707) Set to initial values of $.01 to use goal seek to set AFN = 0 Market D/E: Book Debt / Market Capitaliz. 32.00% N/A
Debt Balance Change (neg is debt retire) N/A $ (800,000) Times Interest Earned: EBIT/Interest Exp 12.50 15.48 Reduced debt and increased operating profit margin
Stock Balance Change (neg is buyback) N/A $ (200,000) Current Ratio: CA / CL 2.88 2.68
Stock Price (End of Year 0, Assume no change) $ 10.00 $ 10.00 Assume no change for simplicity Price / Earnings Ratio (PE): Share Price/EPS 4.45 3.97 Increase in EPS and assumed no change in stock price
Note: Additional Funds Needed (Excess Funds) -
Income statement Year 0 Year 1 Forecast Formulas Common Sized Financials Year 0 Year 1 Change
Sales "Top Line" 10,000,000 11,000,000 Prior Year's Sales * (1 + sales growth rate) Sales "Top Line" 100.0% 100.0%
Costs of goods sold and G&A "OpEx" 5,000,000 5,500,000 Sales * OpEx% Costs of goods sold and G&A "OpEx" 50.0% 50.0% 0.0%
EBITDA: Sales - COGS 5,000,000 5,500,000 EBITDA: Sales - COGS 50.0% 50.0% 0.0%
Depreciation Expense 1,000,000 1,166,842 Change in B/S Accumulated Depreciation Depreciation Expense 10.0% 10.6% 0.6%
EBIT "Operating Profit": EBITDA - Deprec. 4,000,000 4,333,158 EBIT "Operating Profit": EBITDA - Deprec. 40.0% 39.4% -0.6%
Interest payments on debt 320,000 280,000 Avg Debt * Interest on Debt % Interest payments on debt 3.2% 2.5% -0.7%
Interest earned on cash and cash equiv. 64,000 60,372 Avg Cash and Equiv * Interest on Cash % Interest earned on cash and cash equiv. 0.6% 0.5% -0.1%
EBT: EBIT - Net Interest 3,744,000 4,113,530 EBT: EBIT - Net Interest 37.4% 37.4% 0.0%
Taxes 1,497,600 1,645,412 EBT * Tax Rate Taxes 15.0% 15.0% 0.0%
EAT "Net Income", "Bottom Line": EBT - Tax 2,246,400 2,468,118 EAT "Net Income", "Bottom Line": EBT - Tax 22.5% 22.4% 0.0%
Dividends 898,560 987,247 EAT * Dividend Payout % Dividends 9.0% 9.0% 0.0%
Additions to Retained earnings: EAT - Div 1,347,840 1,480,871 Additions to Retained earnings: EAT - Div 13.5% 13.5% 0.0%
Balance sheet Year 0 Year 1 Balance sheet Year 0 Year 1 Change
Cash and Cash Equivalents 800,000 709,293 Prior Cash + Change in Cash Cash and Cash Equivalents 8.0% 6.7% -1.3%
Accounts Receivable & Inventory 1,500,000 1,650,000 Sales * (A/R & Inv / Sales %) Accounts Receivable & Inventory 15.0% 15.6% 0.6%
Fixed Assets At Cost 10,700,000 12,368,420 Prior Net Fixed Assets + CAPEX Fixed Assets At Cost 107.0% 117.1% 10.1%
Accumulated Depreciation 3,000,000 4,166,842 Prior Accum Depreciation + Prior Dep Exp + CAPEX / Deprec. LifeAccumulated Depreciation 30.0% 39.5% 9.5%
Net Fixed Assets 7,700,000 8,201,578 Net Fixed Assets - Depreciation Net Fixed Assets 77.0% 77.7% 0.7%
Total assets 10,000,000 10,560,871 Total assets 100.0% 100.0%
Accounts Payable 800,000 880,000 Sales * (A/P / Sales %) Accounts Payable 8.0% 8.3% 0.3%
Debt 3,200,000 2,400,000 Prior Debt + change in debt Debt 32.0% 22.7% -9.3%
Total Liabilities 4,000,000 3,280,000 Total Liabilities 40.0% 31.1% -8.9%
Stock 4,500,000 4,300,000 Prior Equity + change in equity Stock 45.0% 40.7% -4.3%
Accumulated retained earnings 1,500,000 2,980,871 Prior R/E Balance + Additions to R/E Accumulated retained earnings 15.0% 28.2% 13.2%
Total Equity 6,000,000 7,280,871 Total Equity 60.0% 68.9% 8.9%
Total Liabilities and Equity 10,000,000 10,560,871 Total Liabilities and Equity 100.0% 100.0%
Additional Funds Needed (Excess Funds) - - Must Be Zero
Shares 1,000,000 980,000 Last years shares + change in equity / stock price

Non-Cash Working Capital (A/R + Inv - A/P) 700,000 770,000 Assumes Cash not needed for business operations
Year 1 FYI: How did they Finance the CAPEX?
EBIT x (1-Tax) = NOPAT 2,599,895 Starting with NOPAT CAPEX $1,668,420
Add Back Depreciation 1,166,842 Non-cash Expense (tax impact on cash remains above)
Subtract CAPEX (or -chg in Fixed Assets at Cost) (1,668,420) Not Reported Cash Expense +Additions to Retained Earnings 1,480,871
Subtract Changes In Non-Cash W/C (70,000) Cash impact of inventory, receivables, payables growth +Depreciation 1,166,842
FCFF: NOPAT - Net Reinvestment 2,028,317 +Change in Equity (200,000)
+Change in Debt (800,000)
EBITDA x (1-Tax) = After Tax EBITDA 3,300,000 Starting with EBITDA -Change in Working Capital (70,000)
Add Back Depreciation Tax Shield 466,737 Depreciation Expense * Tax Rate -Reduction in Cash 90,707
Subtract CAPEX (or chg in Fixed Assets at Cost) (1,668,420) Total Funding for CAPEX 1,668,420
Subtract Changes In Non-Cash W/C (70,000)
FCFF 2,028,317
-
Earnings after Tax 2,468,118 Starting with EAT
Add Back Depreciation 1,166,842
Subtract CAPEX (or chg in Fixed Assets at Cost) (1,668,420)
Subtract Changes In Non-Cash W/C (70,000)
Add Back After-Tax Interest On Debt 168,000 Interest is not operating income
Subtract After-Tax Interest on Cash (36,223) Interest is not operating income
FCFF 2,028,317

Net CAPEX (CAPEX - Depreciation Expense) 501,578 Positive for growing firms (more than replacing assets)
Net Reinvestment (Net CAPEX + Changes in NCWC) 571,578 Total Firm CF reinvested
Quick FCFF Calculation: EBIT*(1-t)-Net Reinv. 2,028,317
14