Value-based

Management:

Financial Modeling

Prof. Anna Zholnerchyk

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Practice 1: an example of NOPLAT
IS year IS year
Revenues 1000 Revenues
Operating costs (700) Operating costs
Depreciation (20) Depreciation
Operating profit EBITA
280
Operating taxes
Interest expense (20) NOPLAT
Equity income 4
Earnings before taxes (EBT) 264
Operating taxes are calculated on
operating profits
Taxes (25%) (66)
Nonoperating taxes = Interest tax shield
Net income 198 less taxes on equity income
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Practice 2: an example of NOPLAT
(*1) Real revenue growth rate (per year) = 2%
(*2) Real depreciation expense = 12.5% of future real revenues
(*3) Tax rate = 40% per year
(*4) Annual inflation rate (per year) = 15%
(*5) NOPLAT = EBIT * (1-t), or (Net operating profit - Adjusted tax) = EBIT - Taxes

Real Real Nominal

Year
1 2 2
Revenues 100    
EBITDA 27    
Depreciation 12    
EBIT 15    
 
Taxes 6    
       
   
   
NOPLAT 9    
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Practice 3: an example of Invested Capital
BS Prior year Current year
Cash 5 15
Inventory 200 225
Net PPE 300 350
Equity investments 15 25
Total assets 520 615

Liabilities and Equity

Accounts payable 125 150
Interest-bearing debt 225 200
IC -? Retained earnings 170 265
Total liabilities and equity 520 615
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Solution 3: an example of Invested Capital
Invested capital Prior year Current year
Cash
Inventory
Accounts payable
Operating working capital

Net PPE
Invested capital

Equity investments
Total funds invested

Operating working capital = CA - CL

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Practice 4.1: an example of filling
BS
CFs Prior year Current year
CF (indirect) Current year Cash 5 15
Net income Inventory 200 225
Net PPE 300 350
Depreciation Equity investments 15 25
Change in non cash WC Total assets 520 615
Operating cash flow (CFO)
Liabilities and Equity
Accounts payable 125 150
Capital expendetures Interest-bearing debt 225 200
Change in non current assets Retained earnings 170 265
Total liabilities and equity 520 615
Investing cash flow (CFI) IS Current year
Revenues 1000
Change in debt Operating costs (700)
Depreciation (20) Dividends t = RE t-1+ NI t – RE t
Dividends Operating profit 280
Financing cash flow (CFF)
Interest expense (20)
Change in non cash WC
Equity income 4 = WCt-1 – WC t
Starting cash Earnings before taxes (EBT) 264
Net change in cash Capex t =Net PPE t - NetPPE t-1 +
Ending cash Taxes (25%) (66)
Net income 198
Depreciation t
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Practice 4.2: an example of Free cash Flow
FCF Current year IS year
NOPLAT Revenues 1000
Operating costs (700)
Depreciation
Depreciation (20)
Gross cash flow EBITA 280

Decrease (increase) in operating cash Operating taxes (70)

Decrease (increase) in inventory NOPLAT 210

Increase (decrease) in AP
Equity income 4
Capital expenditure Nonoperating taxes 4
FCF Income available to investors 218

Nonoperating income
Nonoperating taxes Nonoperating cash = cash
Decrease (increase) in equity investments from nonoperating assets *

* = Equity income
CF available for investors
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Practice 5: an example of financial modeling
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Practice 5: an example of financial modeling
CapEX t+1 = Net PPE t - Net PPE t-1 + Depreciationt

NetPPE t+1 = NetPPEt-1/Revenuet-1 × Revenue t+1

Depreciation t+1 = Dt/net PPE t-1 × Net PPE t+1

Interest expenses t+1 = Interest expenses t / Total Debt t-1 × Total Debt t+1
Assamptions 2008 2009E
Q shares 100
LTD 380
STD 70
Capex 300 380
Interest Rate 14%
SG&A/Revenue 12%
CAGR1Y 20%
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Practice 5: an example of financial modeling
CapEX t+1 = Net PPE t - Net PPE t-1 + Depreciationt

NetPPE t+1 = NetPPEt-1/Revenuet-1 × Revenue t+1

Depreciation t+1 = Dt/net PPE t-1 × Net PPE t+1

Interest expenses t+1 = Interest expenses t / Total Debt t-1 × Total Debt t+1
Assamptions 2008 2009E Pro forma 2008 2009E 2009E
Q shares 100 Revenue 900 1080
net PPE 630
LTD 380
netPPE/Revenue 70% netPPE 756
STD 70 Dt/netPPEt-1 31% D 236,25
Capex 300 380 Capex 300 362,25 capex 362,25
Interest Rate 14% Interest expense 14% 61,364
SG&A/Revenue 12% SG&A expense 12% 126
CAGR1Y 20% CAGR1Y 20%
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Solution 5: an example of financial modeling
Income Statemets
2007A 2008A 2009E
Revenue 750 900
COGS 300 360

Gross profit 450 540

SG&A Expenses 90 105
Depreciation 120 150
Operating Income (EBIT ) 240 285
Interest Expenses 30 45
Pre Tax Income 210 240
Provision for Income Taxes 63 72
Net Income After Taxes 147 168
Earning per Share (EPS) 1,47 1,68

EBITDA 360 435

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Solution 5: an example of financial modeling
Balance Sheet
2007A 2008A 2009E
Assets
Cash 15 30
Accounts receivable 45 90
Inventory 90 120
Current Assets 150 240
Gross PPE 900 1200
Accumulated DA 420 570
Net PPE 480 630
Total Assets 630 870

Liabililities
Account payable 60 60
Short term debt 30 60
Current Liabilities 90 120
Long term debt 300 342
Common Stock 150 150
Retained earning 90 258
Total liabilities and Equity 630 870
Check 0 0
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Solution 5: an example of financial modeling
Cash Flow Statement 2008A 2009E
Cash from Operating Activities
Net Income 168
+DA 150
+changeNWC (75)
CFO 243
Cash from Investing Activities
Capex (300)
CFI (300)
Cash flow from Financing Activities
Change in STD 30
Change in LTD 42
CFF 72
Net change in Cash 15
Cash at the beginning 15
Cash at the ending 15 30
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Core Literature and Recourses

1. Valuation: Measuring and Managing the Value of Companies, 6th Edition  /   
T.Koller, M.Goedhart, D. Wessels. – McKinsey & Company Inc., 2015. – 824 p.
2. Damodaran,A. Applied Corporate Finance. Wiley. 2000.
3. Дамодаран Асват Инвестиционная оценка. Инструменты и методы оценки
любых активов / пер. В. Ионов – М.: Альпина Паблишер, 2016. – 1316 с.
4. www.investopedia.com
5. www.mckinsey.com
6. www.mindspace.com
7. www.wallstreetmojo.com
8. www.cfainstitute.org
9. corporatefinanceinstitute.com