analysis on xyz

Financial Analysis & ForecastingPrepared by Matt H. Evans, CPA, CMA, CFM

Purpose of Spreadsheet: Revised: 11/22/2002 active

To illustrate concepts related to financial analysis and forecasting. The financial analysis uses a combination of ratios and industry averages to evaluate the financial performance of the company. Trend line graphs are alsogenerated, comparing the company's performance with the industry averages.Finally, the historical information is used to prepare a set of pro forma financial statements using both linear and non-linear functions.

Required Inputs:

You will need to collect financial statements for several reporting periods. If youwant to benchmark the performance against the industry, then you will also needto collect industry averages. The spreadsheet is setup to capture five reportingperiods (annual, quarterly, monthly). All input fields are highlighted in yellow.For best results, SEC Filings are suggested since these reports provide more detail than published financial statements.

Note: A small red triangle in the upper right corner of a cell indicates that a comment has been inserted. Point your mouse over the cell and the comment will appear.

If a cell appears in red, this indicates a warning concerning a calculation.

Worksheets:

This spreadsheet consists of the following worksheets, divided into three sections:

A) Input Worksheets for financial analysis using historical data:

Worksheet Title Purpose2 Enter general information here - used on several worksheets.3 Enter comparative balances sheets for up to five periods.4 Enter comparative income statements for up to five periods.5 Enter comparative cash flow statements for up to five periods.

Caution: If you enter less than five years of historical information, certain worksheet formulas may have to be revised.

B) Output Worksheets for evaluating financial performance:6 Calculates key financial information for further analysis.7 Calculates a series of ratios for further analysis.8 Compare ratio analysis to industry averages.9 Horizontal analysis with corresponding trend lines.

10 Common size financials in percentages and graphs.

C) Pro Forma / Forecasted Financials for Budgeting:

11 Set of pro forma financials using simple assumptions

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General InputBalance SheetIncome StatementCash Flow Statement

Key Financial DataRatio AnalysisBenchmark AnalysisHorizontal AnalysisVertical Analysis

Pro Forma - Simple

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Home - Active Worksheet

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Balance Sheet

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Cash Flow Statement

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Ratio Analysis

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Horizontal Analysis

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Pro Forma Financials - Simple Projection Model

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Pro Forma Financials - Exponential Smoothing

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Budget Analysis

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Comment boxes are used to describe accounts, ratios, and other information used in this spreadsheet! Whenever you see a small red triangle, point your mouse over this cell for additional information.

12 Set of pro forma financials using linear trending13 Set of pro forma financials using exponential smoothing14 Example of Scenario Analysis and Goal Seek Analysis15 Preliminary budget analysis16 Set of budgets per various assumptions and forecasts.

Note: Some additional worksheets (Answer Reports 1 & 2) may appear in the spreadsheetdue to the running of Solver.

Macros:

No macros have been used in this spreadsheet to give everyone some assurance that no virusesare contained in the spreadsheet. However, you are free to add your own macros to save time.Tools > Macro > Record New Macro

Excel Functions:

This spreadsheet uses certain financial functions (such as =TREND) which might not befound in your version of Microsoft Excel. To take full advantage of financial and statisticalfunctions, you should install the Add On package titled: Analysis TookPak. Go to the maintool bar, select Tools => Add-Ins => check the Analysis TookPak option, insert your Excel CD and install the Analysis ToolPak. Also, you might want to install the SolverAdd-in since this is useful for solving special forecasting issues (such as finding the optimal exponential factor).

Compatibility:

This spreadsheet was created with Microsoft Excel 2000. Older versions of Excel (such as 97) may not be compatible with this spreadsheet.

Corrections:With any “attempt” to build an Excel Model, I can easily make some mistakes.So if you have suggestions to make the model better, drop me an email and I’ll be glad to improve the financial model. My email address is:

Pro Forma - RegressionPro Forma - ExponentialScenario AnalysisBudget AnalysisFinal Budgets

[email protected]

mailto:[email protected]

Prepared by Matt H. Evans, CPA, CMA, CFM

PurposeEnter general information here - used on several worksheets.Enter comparative balances sheets for up to five periods.Enter comparative income statements for up to five periods.Enter comparative cash flow statements for up to five periods.

Caution: If you enter less than five years of historical information, certain worksheet

Calculates key financial information for further analysis.Calculates a series of ratios for further analysis.

Horizontal analysis with corresponding trend lines.Common size financials in percentages and graphs.

Set of pro forma financials using simple assumptions

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General Input

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Income Statement

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Key Financials

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Benchmark Analysis

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Vertical Analysis

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Pro Forma Financials - Linear Trend Model

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Scenario Analysis

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Final Budgets

Set of pro forma financials using linear trendingSet of pro forma financials using exponential smoothingExample of Scenario Analysis and Goal Seek Analysis

Set of budgets per various assumptions and forecasts.

Note: Some additional worksheets (Answer Reports 1 & 2) may appear in the spreadsheet

General Input PanelThe following general information should be entered:Note: Sample data has been entered in the input cells to help you get started.

2-1 Name of Company => X Y Z Corporation USA

2-2 Reporting Periods => Annual (Annual, Semi-annual, Quarterly or Monthly)

2-3 Number of Days in Reporting Period are 365

What reporting periods will be entered?

2-4 Most Current Period 2000 (1999, July 1998, 6/30/97, etc.)2-5 Previous Period 1999 (1999, July 1998, 6/30/97, etc.)2-6 2nd Previous Period 1998 (1999, July 1998, 6/30/97, etc.)2-7 3rd Previous Period 1997 (1999, July 1998, 6/30/97, etc.)2-8 4th Previous Period 1996 (1999, July 1998, 6/30/97, etc.)

2-9 Number of historical periods to be analyzed 5

How are the amounts expressed in the financial statements?(such as: in millions of dollars, thousands of Canadian dollars, etc.)

2-10 millions of dollars

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Return to 1st Worksheet

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Balance Sheet

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Cash Flow Statement

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Ratio Analysis

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Horizontal Analysis

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Budget Analysis

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General Input

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Income Statement

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Key Financials

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Benchmark Analysis

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Vertical Analysis

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Scenario Analysis

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Final Budgets

Prepared by Matt H. Evans 04/08/2023

Balance Sheet forX Y Z Corporation USA millions of dollars

Annual Annual Annual Annual AnnualPeriod Period Period Period Period

Description 1996 1997 1998 1999 2000

Cash and Cash Equivalents 990 950 901 998 870 Short Term Marketable Securities 10 15 12 6 11 Accounts Receivable 1,020 1,550 1,830 2,250 3,040 Inventory 1,005 1,360 1,650 1,900 2,060 Other Current Assets 870 1,150 1,370 1,650 1,530 Total Current Assets 3,895 5,025 5,763 6,804 7,511

Fixed Assets 14,006 17,605 21,826 26,950 28,100 Accumulated Depreciation (1,280) (1,700) (2,100) (2,550) (3,010)Net Fixed Assets 12,726 15,905 19,726 24,400 25,090 Longterm Investments 360 320 120 590 905 Investments in Other Companies 65 0 0 250 412 Intangibles and Other Assets 100 110 105 135 195 Total Non Current Assets 13,251 16,335 19,951 25,375 26,602 Total Assets 17,146 21,360 25,714 32,179 34,113

Accounts Payable 2,050 3,150 3,290 3,870 4,800 Short Term Borrowings 1,200 1,830 2,580 3,100 3,550 Short Term Portion of LT Debt 12 15 25 30 36 Other Current Liabilities 1,050 1,250 1,480 1,590 1,301 Total Current Liabilities 4,312 6,245 7,375 8,590 9,687

Longterm Debt / Borrowings 1,160 1,750 2,600 3,600 3,950 Other Longterm Liabilities 650 750 701 890 995 Total Non Current Liabilities 1,810 2,500 3,301 4,490 4,945 Total Liabilities 6,122 8,745 10,676 13,080 14,632

C9

All cash on hand and any deposits that can be converted into cash. Restricted Cash should be Other Current Assets

C10

Can be held long-term, but is held for the purpose of earning a return on idle cash.

C11

Receivables from sales of products on account. Notes Receivalbe should be reported in Other Current Assets for accurate ratio analysis.

C12

Assets held for sale in ordinary business. All cost such as storage, handling, etc are part of inventory. There forms of inventory are Raw Materials, Work in Progress, and Finished Inventory.

C13

All other current assets not otherwise categorized, such as prepaid items.

C16

Noncurrent tangible assets used in business operations, such as equipment, vehicles, machinery, land, etc.

C17

Cumulative depreciation taken on fixed assets.

C19

All longterm investments at cost.

C20

Investments under the Equity Method in other companies

C21

All other non current assets, such as goodwill, trademarks, etc.

C25

Payables related to normal trade transactions with suppliers, vendors, etc. Does not include notes payable.

C26

Short term loans, notes payable, commercial paper, etc.

C27

Portion of longterm debt that will come due in the current period.

C28

All other current liabilities such as taxes payable, advances from customers, etc.

C31

Longterm bank loans, bonds, mortgages, capital lease obligations, etc.

C32

All other noncurrent liabilities, such as pensions, product warranties, and future obligations recognized.




Description 1996 1997 1998 1999 2000

Preferred Equity 0 0 0 0 0 Common Equity 2,044 2,005 2,069 2,090 2,120 Additional Paid in Capital 5,013 4,900 5,159 5,626 5,628 Retained Earnings 5,097 7,050 9,840 15,050 20,005 Adj for Foreign Currency Transl 275 120 (550) (2,147) (6,722)Treasury Stock (1,405) (1,460) (1,480) (1,520) (1,550)Total Shareholder Equity 11,024 12,615 15,038 19,099 19,481

Total Liabilities & Equity 17,146 21,360 25,714 32,179 34,113

Check: Assets = Liab + Equity ? 0 0 0 0 0 Comment => Balances Balances Balances Balances Balances

NonDepreciable Fixed Assets 0 0 0 0 0Deferred Taxes 112 101 90 98 109Goodwill Write Off 0 0 0 0 0No of Common Shares o/s 1,320 1,290 1,302 1,345 1,322Par Value of Common Stock $10.00 $10.00 $10.00 $10.00 $10.00No of Preferred Shares o/s 0 0 0 0 0Par Value of Preferred StockMarket Price of Common Stock $22.65 $28.90 $37.05 $33.60 $29.40 Market Price of Preferred Stock $0.00 $0.00 $0.00 $0.00 $0.00 Preferred Dividends in Arrears 0 0 0 0 0Liquidating value of Preferred Stk 0 0 0 0 0Book Value per Share $8.35 $9.78 $11.55 $14.20 $14.74 Dividends per Common Share $1.01 $1.49 $1.89 $1.75 $1.76

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Total Equity from issuing preferred stock.

C37

Common stock equity at par value.

C38

Common Equity above par value.

C39

Transfer of earnings from various periods less dividends paid to shareholders.

C40

Foreign currency translations accounted for under the Current Rate Method are reported in the Balance Sheet. Foreign currency translations accounted for under the Temporal Method are reported in the Income Statement.

C41

Stock buybacks and held in treasury at purchase cost. Reported as a negative amount to equity.

C46

Make sure your Assets + Liabilities balance out with your total Equity. If not, the cell will appear in red with the out-of-balance amount.

C50

Isolate any nondepreciable fixed assets for standardization, such as land or work in progress.

C51

Arises from timing differences between financials and tax return.

C53

Average number of common shares outstanding. Rounded to fit with the Income Statement. If no major issues of stock and/or retirements took place during the period, then it's OK to use year-end outstanding shares.

C57

Fair market value (price) of stock at end of period.

C58

Fair market value (price) of preferred stock at the end of the period.

C59

Preferred dividends in arrears based on par value of preferred x dividend rate x shares outstanding x number of years in arrears.

C60

Par value of preferred stock plus any premium that must be paid to retire preferred stock.

C61

Total Equity (Net Assets) less any preferred stock dividends in arrears and the liquidation value of outstanding preferred stock.




Description 1996 1997 1998 1999 2000

Dividend Payout Ratio 45.47% 38.61% 39.44% 29.76% 30.24%Cash Dividends to Preferred Stock 0 0 0 0 0 Cash Dividends to Common Stock 1,330 1,918 2,461 2,354 2,329 Total Dividends Paid 1,330 1,918 2,461 2,354 2,329

C64

All dividends declared for the reporting period on preferred stock.

C65

All dividends declared and appropriated for the reporting period on common stock. Dividends actually paid per the Cash Flow Statement have been used to simplify the analysis.


Income Statement forX Y Z Corporation USA

millions of dollarsAnnual Annual Annual Annual AnnualPeriod Period Period Period Period

Description 1996 1997 1998 1999 2000Net Sales 12,060 16,700 21,170 24,700 27,400Other Operating Revenues 16 19 26 37 48Total Revenues 12,076 16,719 21,196 24,737 27,448Cost of Goods Sold (4,950) (7,050) (8,233) (9,050) (10,150)Other Operating Expenses (11) (13) (17) (22) (28)Total Direct Expenses (4,961) (7,063) (8,250) (9,072) (10,178)Selling, General & Administrative (3,300) (3,880) (4,637) (5,670) (7,120)Operating Income 3,815 5,776 8,309 9,995 10,150

Interest Expenses (117) (122) (216) (282) (304)Foreign Exchange (Loss) Gain 0 0 0 0 0 Associated Company (Loss) Gain 0 0 (22) 0 0 Other NonOperating (Loss) Gain 0 17 0 0 0 Income Tax Expense (790) (1,005) (2,050) (2,105) (2,660)Reserve Charges 0 0 0 0 0 Income Before Extra Ord Items 2,908 4,666 6,021 7,608 7,186

Extra Ordinary Items (Loss) Gain 0 0 0 0 0 Tax Effects of Extraordinary Items 0 0 0 0 0 Minority Interests 17 302 219 303 515 Net Income 2,925 4,968 6,240 7,911 7,701

Primary EPS $2.22 $3.85 $4.79 $5.88 $5.83Earnings Before Int & Taxes 3,832 6,095 8,506 10,298 10,665 Depreciation & Amortization (310) (420) (400) (450) (460)Research & Devel Expenses 0 0 0 0 0 Capitalized Interest Expense (16) (19) (33) (39) (30)Interest Income 4 6 11 19 27

C8

Net Sales includes all revenues from various operating activities. "Net" refers to the fact that Sales have been adjusted for returns, credits, and other adjustments.

C9

All revenues not from the main operating activities of the company

C11

The costs of products sold (labor, materials, overhead, etc.). The Cost of Goods Sold is calculated by looking at changes in the inventory accounts: Beginning Inventory $ 50,000 + Purchases during the period 25,000 Total goods available for sale 100,000 - Ending Inventory 40,000 Cost of Goods Sold 60,000

C14

All indirect costs, such as marketing, engineering, research, accounting, technology support, etc.

C17

Cost of borrowing - short term and long term debt, factoring, etc.

C18

Loss or Gain from investments overseas, including translations not reported in the Balance Sheet. If using the Current Rate Method, translation adjustments are reported in the equity section of the Balance Sheet.

C19

Equity interest in other companies; I.e. the undistributed loss or income under the Equity Method.

C20

Loss or Gains from sale of investments and assets.

C21

All federal, state, and local taxes imposed on taxable income. Taxable income may differ from Reported Income.

C22

Establishing a reserve for events unrelated to normal operations, such as a lawsuit or merger.

C25

Unusual and infrequent events such as floods, fires, war, discontinued operations, changes in accounting, etc.

C26

Tax charges or credits related to extraordinary items are disclosed separately.

C27

If a company owns less than 100% in another company, report the undistributed loss / earnings for minority interest held by the company.

C30

Net Income (ref 4-19) divided by weighted average common shares outstanding for the period.

C32

All depreciation, amortization, and depletion expenses.

C33

Costs of research and development; usually treated as a general expense of the business.

C34

Interest costs that can be allocated or absorbed by inventories or fixed assets.

C35

Interest Income on Marketable Securities and other investments. If this item is material, you may want to break it out on the Income Statement.


Income Statement forX Y Z Corporation USA


Description 1996 1997 1998 1999 2000Total Non Operating Expenses (907) (1,110) (2,288) (2,387) (2,964)Total Extra Ordinary Items 17 302 219 303 515 Tax Rate 21.36% 17.78% 25.33% 21.67% 27.02%

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An estimated calculation of the tax rate by dividing Income Tax Expense by Income Before Taxes. Note: We entered the formula so that only positive income would be taxed. If you have a Loss, then 0 is entered.


Cash Flow Statement forX Y Z Corporation USA


Description 1996 1997 1998 1999 2000

Net Income 2,925 4,968 6,240 7,911 7,701 Depreciation and Amortization 310 420 400 450 460 (Increase) Decrease Defer Taxes (2) 11 11 (8) (11)(Gain) Loss on Sale of Assets (55) 0 45 0 0 (Increase) Decrease Current Assets (162) (1,130) (738) (1,041) (707)Increase (Decrease) Current Liab 206 1,933 1,130 1,215 1,097 Cash Flow from Operations 3,222 6,202 7,088 8,527 8,540

Capital Expenditures (1,455) (2,750) (3,880) (5,220) (4,108)Acquisition in Other Co's (135) 0 0 0 0 Proceeds from Sales of Assets 112 35 0 150 182 Purchases of Investments (712) (1,979) (1,801) (2,314) (2,609)Sale of Investments 162 129 330 221 50 Other Investment Activities 33 (166) 61 (12) 0 Cash Provided (Used) from Investmts (1,995) (4,731) (5,290) (7,175) (6,485)

Proceeds from Borrowings 1,070 1,044 1,460 1,880 1,105 Payments on Borrowings (1,112) (650) (898) (801) (961)Dividends Paid to Shareholders (1,330) (1,918) (2,461) (2,354) (2,329)Proceeds from Minority Interest 5 12 7 7 8 Issue Stock / Exercise Options 195 1 45 13 6 Purchase / Retire Common Stock 0 0 0 0 0 Other Financing Activities (75) 0 0 0 (12)Cash Provided (Used) from Financing (1,247) (1,511) (1,847) (1,255) (2,183)

Increase (Decrease) to Cash (20) (40) (49) 97 (128)

C10

Using the Indirect Approach, we start with Net Income and adjust back to Cash Flow from Operations. In some cases, we may need to start with a line item between Operating Income and Net Income.

C11

Major noncash expenses include depreciation on fixed assets, amortization of intangibles, and depletion of natural resources. Changes in the Accumulated accounts can help identify the total amount of noncash expenses.

C12

Provisions for deferred taxes increase and decrease according to time differences between income reported in the financial statements as opposed to income reported for paying taxes. Increases to the provision account are subtracted / decreases are added back to Net Income.

C13

Gains and Losses show up in Net Income, but they are non-cash items. We need to reverse out Gains and add back Losses.

C14

Changes to working capital other than cash will affect cash. Increases to current assets are reversed out and decreases are added back to Net Income.

C15

Increases to current liabilities are added back while decreases to current liabilities are deducted from Net Income.

C18

Amounts spent to acquire capital assets used in the operations of the business.

C19

Special Acquisitions such as acquiring another company.

C20

Amounts received from divestitures and other special assets.

C21

Amounts spent on investments, such as the purchase of marketable securities.

C22

Amounts received from the sale of various investments, such as securities.

C26

Amounts received from all forms of borrowings, both short term and long term.

C27

Amounts paid out on all borrowings, both interest and principal payments.

C28

Dividends actually disbursed to all shareholders (common and preferred).

C29

Amounts paid to the company for its equity ownership interest in another company.

C30

Issuing new stock and the conversion of securities into cash for the purpose of financing the business.

C31

The amounts paid out to acquire outstanding stock of the company through a buyback program.


Cash Flow Statement forX Y Z Corporation USA


Description 1996 1997 1998 1999 2000Beginning Cash Balance 1,010 990 950 901 998 Ending Cash Balance 990 950 901 998 870 Check: Should agree to Balance Sheet 0 0 0 0 0

Comment => Balances Balances Balances Balances Balances

C37

Ending cash balance from the previous year is carried forward as the beginning cash balance for the current reporting period.

C39

The ending cash balance should agree with the Balance Sheet account.

Key Financial Data forX Y Z Corporation USA millions of dollars


Description 1996 1997 1998 1999 2000EBITDA :Income before ExtraOrd Items 2,908 4,666 6,021 7,608 7,186 Interest Expense 117 122 216 282 304 Capitalized Interest Expense 16 19 33 39 30 Income Tax Expense 790 1,005 2,050 2,105 2,660 Reserve Charges 0 0 0 0 0 Depreciation and Amortization 310 420 400 450 460 EBITDA 4,141 6,232 8,720 10,484 10,640

EBITDA Margin 34% 37% 41% 42% 39%

Free Cash Flow:Operating Cash Flow 3,222 6,202 7,088 8,527 8,540 Investment Cash Flows (1,995) (4,731) (5,290) (7,175) (6,485)Preferred Dividends Paid (fixed) 0 0 0 0 0 Redemption of Fixed Obligations (1,112) (650) (898) (801) (961)Other Critical Outlays (35) (45) (42) (30) (25)Free Cash Flow 80 776 858 521 1,069

Working Capital:Current Assets 3,895 5,025 5,763 6,804 7,511 Current Liabilities 4,312 6,245 7,375 8,590 9,687 Working Capital (417) (1,220) (1,612) (1,786) (2,176)

Liquid Capital:Cash and Cash Equivalents 990 950 901 998 870 Marketable Securities 10 15 12 6 11 Accounts Receivable 1,020 1,550 1,830 2,250 3,040 Notes Receivable 0 0 0 0 0Total Current Liabilities (4,312) (6,245) (7,375) (8,590) (9,687)Long Term Debt (1,160) (1,750) (2,600) (3,600) (3,950)Preferred Equity 0 0 0 0 0 Liquid Capital (3,452) (5,480) (7,232) (8,936) (9,716)

The following valuation indicators are very simple and basic; they are used as quick, rough estmates.

Market Capitalization:Market Cap - Common Stk $29,898 $37,281 $48,239 $45,192 $38,867 Market Cap - Preferred Stk $0.00 $0.00 $0.00 $0.00 $0.00 Total Market Capitalization $29,898 $37,281 $48,239 $45,192 $38,867

Present Value:Normalized Cash Flow Weight %'s 5.00% 10.00% 15.00% 30.00% 40.00%

C9

Earnings Before Interest, Taxes, Depreciation, Depletion, and Amortization. EBITDA is used by many analyst as a quick indicator of cash flow.

C18

EBITDA Margin on Sales EBITDA / Net Sales

C20

Excess cash remaining after paying off major recurring expenses. There are many ways of calculating Free Cash Flow. The objective is to express Cash Flow after non-discretionary items have been paid out. Think of Free Cash Flow as the Cash you can take out of the business after paying off only the "must" items.

C23

Preferred Stock has a fixed obligation to Preferred Shareholders and must be paid

C24

Consists mainly of principal payments against debt and lease obligations.

C25

Any other critical cash outlays required to sustain the business.

C28

Current Assets less Current Liabilities.

C33

Total Capital with high liquidity that is used within the business.

C46

Fair market value of equity. Note: This does not include fair market value of debt (the other side of assets).

C47

Total common outstanding shares x the price of the common stock.

C48

Total preferred shares outstanding x price of preferred stock.

C52

Assign % weights to each of the Free Cash Flows calculated above in this worksheet. The most recent Free Cash Flows usually carry more weight since they are more recent. Make sure your weights add up to 100%

Key Financial Data forX Y Z Corporation USA millions of dollars


Description 1996 1997 1998 1999 2000Normalized Cash Flow 794 Number of Future Periods 15Required Rate of Return 11.00%Present Value of Free Cash Flow $5,711 Present Value of Selling Price $315,000 <= estimated selling price $65,836 Present Value of Business $71,547

Revenue Multiplier:Recent Gross Revenues 27,448Average Competitive Rev Multiplier 3.14Value based on Revenue Multiple $86,187

Capitalization of Earnings:Normalized Net Income Weights % 5.00% 5.00% 25.00% 30.00% 35.00%Normalized Net Income 6,681 Capitalization Rate 12.00%Nominal Growth Rate 3.50%Net Capitalization Rate 8.50%Value based on Earnings $78,605

Operating Leverage 1.31 1.49 1.21 0.14

Financial Leverage 1.46 0.61 1.12 (0.65)

Total Leverage 1.92 0.91 1.36 (0.09)

Check Totals 0.00 1.92 0.91 1.36 (0.09)

C53

Normalized Cash Flow represents what we think is a "normal" representative cash flow for our entire historical period.

C54

The total number of future periods we expect to collect the Normalized Cash Flow. NOTE: An annual period counts as 1 period. If semiannual, period = 2, quarterly = 4, and monthly = 12.

C55

You need to enter the required rate of return for the business. Sometimes this is the weighted average cost of capital. Note: If using semi-annual periods, quarterly periods, or monthly periods; don't forget to divide into your annual rate of return. For example, we used an annual rate of 14% for 15 annual periods. If we were using semi-annual cash flows, we would use 7% (14% / 2)

C57

At the end of future periods, we will sell the business for an estimated selling price. This amount is discounted back to the present using the same required rate of return used for discounting the free cash flow. If you want to use differrent assumptions for discounting, then change the applicable inputs in this worksheet.

C60

Revenue multipliers are common to most industries. We can use these multiples as a rough guide for value comparisons.

C61

We selected the most recent total revenues since the multipliers are representative for the most current period only.

C62

Based on competitive analysis, we can take the average of company's that compete directly with our company. We can compare their market capitalizations to their total revenues and calculate a multiple. In our example, we used three companies: Competitor A: Market Cap of $ 32,505 and total revenues of $ 10,300 = 3.16 Competitor B: Market Cap of $ 16,788 and total revenues of $ 5,215 = 3.22 Competitor C: Market Cap of $ 51,600 and total revenues of $ 16,920 = 3.05 Average = (3.16 + 3.22 + 3.05) / 3 = 3.14

C66

Assign % weights to each period so that we can arrive at a "normal" earnings that appears to be representative for the historical period. Most recent periods usually carry more weight. Since earnings moves ahead of cash flow, our weights used for free cash flow may differ somewhat. Don't forget your weights need to add up to 100%.

C67

You may want to adjust Net Income to reflect items that are not recurring in nature. For example, in our example, we used Earnings Before Extra Ordinary Items. You can also make other adjustments out of Net Income that you think are not normal recurring items or items not relevant in your valuation.

C68

The required rate of return based on the risk associated with future expected earnings.

C69

As a minimum, the business should grow at a nominal rate despite uncertainty. Therefore, we will deduct this rate from our capitalization (required rate of return).

C74

Operating Leverage is the extent to which a business uses fixed operating costs. It can be calculated by looking at the % change in EBIT / % change in Sales. It answers the question: Given a change to sales, what multiple change will take place to EBIT.

C76

The degree to which the company is financed through fixed obligations, mainly debt and preferred stock. Financial leverage indicates what % change to EPS (Earnings Per Share) will take place given a 1% change to EBIT.

C78

The combination of the two - operating and financial leverage.

C80

If our calculations are correct, then Operating Leverage x Financial Leverage = Total Leverage

Ratio Analysis forX Y Z Corporation USA


Title of Ratio 1996 1997 1998 1999 2000

Acid Test Ratio 0.47 0.40 0.37 0.38 0.40

Current Ratio 0.90 0.80 0.78 0.79 0.78

Operating Cash Flow to Net Income 1.10 1.25 1.14 1.08 1.11

Liquidity Index:Cash - Days Removed 0 0 0 0 0Cash Balance 990 950 901 998 870 Cash Balance Total 0 0 0 0 0Marketable Sec - Days Removed 11 12 16 15 14Marketable Securities Balance 10 15 12 6 11 Marketable Securities Total 110 180 192 90 154Receivables - Days Removed 34 30 31 32 36 Receivable Balance 1,020 1,550 1,830 2,250 3,040 Receivable Balance Total 34,257 46,158 56,217 72,213 110,751 Inventory - Days Removed 79 61 67 72 71 Inventory Balance 1,005 1,360 1,650 1,900 2,060 Inventory Balance Total 79,745 83,261 110,092 136,018 146,676 Other - Days Removed 16 22 26 21 19 Other Current Assets Balance 870 1,150 1,370 1,650 1,530 Other Current Assets Total 13,920 25,300 35,620 34,650 29,070 Liquidity Index (Days) 33 31 35 36 38

Z Score:1.2 x (working capital / total assets) (0.03) (0.07) (0.08) (0.07) (0.08)1.4 x (retained earn / total assets) 0.42 0.46 0.54 0.65 0.82 3.3 x (EBIT / total assets) 0.74 0.94 1.09 1.06 1.03 .6 x (market value equity / b.v. debt) 15.46 12.78 11.13 7.53 5.90 .999 x (sales / total assets) 0.70 0.78 0.82 0.77 0.80 Z Score 17.29 14.90 13.51 9.94 8.48

Receivable Turnover:Credit Sales 11,520 15,750 20,080 23,200 26,500 Average Receivable Balance 1,060 1,285 1,690 2,040 2,645 Receivable Turnover 10.9 12.3 11.9 11.4 10.0

Days Required to Collect A/R 34 30 31 32 36

Inventory Turnover: Average Inventory Balance 1,046 1,183 1,505 1,775 1,980 Inventory Turnover 4.6 6.0 5.5 5.1 5.1 Days in Inventory 79 61 67 72 71

Total Asset Turnover 0.7 0.8 0.8 0.8 0.8

C10

Acid Test or Quick Ratio is the ratio of quick assets (cash, receivables, and marketable securities) in relation to current liabilities.

C12

The ratio of current assets to current liabilities.

C14

The extent to which Net Income is supported by Operating Cash Flows.

C16

An index for expressing the number of days that current assets are not liquid (available in the form of cash). It is calculated by multiplying the number of days each current asset is removed from cash / total amount of current assets.

C17

Since cash is not removed from cash, number of days is usually equal to zero.

C20

Number of days marketable securities are removed from cash.

C29

Estimated days that all other current assets are removed from cash.

C30

Other current assets may include prepaid expenses or deposits.

C32

Overall average days current assets are removed from cash. The reference locations for making this calculation is as follows: 8-12 = (8-5 + 8-7 + 8-8 + 8-9 + 8-11) / (3-1 + 3-2 + 3-3 + 3-4 + 3-5)

C34

The Z Score is an overall indicator of a company's risk of failing due to financial weakness. It consists of five combined calculations. The resulting score is compared to the following scale: Z Score Probability of Business Failure 1.8 or less Very high 1.81 to 2.99 Not Able to Determine 3.0 or more Very low

C45

Total Sales on credit as opposed to cash sales.

C46

Beginning and Ending Receivable Balances divided by 2

C47

Number of times during the period receivables were turned over into sales.

C49

Number of Days before receivables are collected in cash. The receivable balance is divided by Credit Sales per Day.

C54

The number of times inventory turned over during the period. Calculated as: Cost of Goods Sold divided by Average Inventory for the period.

C56

Number of days inventory is held before being turned over. Simply divide the Turnover Rate into total number of days.

C58

Number of times assets are turned over into sales.

Ratio Analysis forX Y Z Corporation USA


Title of Ratio 1996 1997 1998 1999 2000

Operating Assets Ratio 0.97 0.98 0.99 0.97 0.96

Gross Profit Margin 59% 58% 61% 63% 63%

Operating Margin 32% 35% 39% 40% 37%

Net Profit Margin 24% 30% 29% 32% 28%

Direct Cost to Operating Revenues 41% 42% 39% 37% 37%

Capitalization Rate / Asset Return:Net Operating Income 3,000 4,749 6,204 7,829 7,408 Total Investments / Operating Assets 16,621 20,930 25,489 31,204 32,601 Capitalization Rate / Return 18.05% 22.69% 24.34% 25.09% 22.72%

Return on Shareholder Equity 24% 33% 35% 33% 26%

Debt to Total Assets 0.36 0.41 0.42 0.41 0.43

Debt to Common Equity 0.50 0.63 0.63 0.57 0.53

Times Interest Earned 33 50 39 37 35

Price to Earnings (P/E) 10.2 7.5 7.7 5.7 5.0 Price to Book Value 2.7 3.0 3.2 2.4 2.0

Stock Yield 4.45% 5.14% 5.10% 5.21% 5.99%

C60

Degree to which operating assets are applied to the business in relation to overall total assets within the company.

C63

Gross Profit is the amount remaining after Cost of Goods Sold is deducted from Sales. Gross Profit divided by Sales is the Gross Profit Margin.

C65

Operating Income divided by Sales.

C67

Net Income in relation to Total Revenues. You can also use Earnings after Taxes divided by Sales.

C69

Total direct cost (materials, labor, overhead) in relation to operating revenues. Provides a quick indication of managing operating costs as sales change.

C71

Cap Rate or Income Yield is used by real estate and other companies that invest heavily in assets that are financed. Ratio is calculated as: Net Operating Income / Purchase Price of Asset You can also divide Operating Income after taxes by the total cost of Operating Assets to express Return on Operating Assets.

C76

Earnings after Taxes divided by common equity (includes retained earnings.) Extra Ordinary Items were not included in order to obtain a more "normal" ratio. However, you can use Net Income as your numerator. Also, you need to deduct Preferred Dividends if they were paid out from Earnings. You can also improve the accuracy somewhat by using the Average Common Equity in your denominator.

C79

Total leverage (current liabilities + longterm debt) in relation to total assets.

C81

Ratio of total liabilities in relation to common equity (includes retained earnings).

C83

Number of times Earnings Before Interest and Taxes covers Interest Expense.

C86

Price of Stock / Earnings Per Share

C88

Price of Stock in relation to Book Value per Share

C90

Dividend paid per share divided by the Price of the Stock.

Benchmark Analysis forX Y Z Corporation USA

active You need to collect benchmark data on the respective industry for the subject company.Enter the benchmark data in the appropriate input cells. This information is used to generate trend line graphs in this worksheet. If you do not have any benchmark data,then fill in the highlighted yellow cell with numeric zero "0". The "industry" line will be nullin the graph and show only the company specific ratio trend.

Annual Annual AnnualPeriod Period Period

Ref Description 1996 1997 1998

8-1 Acid Test Ratio - Industry 0.51 0.52 0.507-1 Acid Test Ratio - Company 0.47 0.40 0.37

8-2 Current Ratio - Industry 1.12 1.10 1.05 7-2 Current Ratio - Company 0.90 0.80 0.78

8-3 Receivable Turnover - Industry 8.50 8.70 8.40 7-21 Receivable Turnover - Company 10.87 12.26 11.88

8-4 Days to Collect A/R - Industry 41 39 40 7-22 Days to Collect A/R - Company 34 30 31

8-5 Inventory Turnover - Industry 4.40 4.45 4.20 7-25 Inventory Turnover - Company 4.60 5.96 5.47

8-6 Days in Inventory - Industry 86 88 817-26 Days in Inventory - Company 79 61 67

8-7 Asset Turnover - Industry 1.60 1.55 1.62 7-27 Asset Turnover - Company 0.70 0.78 0.82

8-8 Gross Profit Margin - Industry 55.00% 52.00% 60.00%7-29 Gross Profit Margin - Company 58.96% 57.78% 61.11%

8-10 Net Profit Margin - Industry 20.00% 23.00% 22.00%7-31 Net Profit Margin - Company 24.22% 29.71% 29.44%

8-11 Return on Total Assets - Industry 38.00% 36.00% 37.00%8-12 Return on Total Assets - Company 30.00% 25.80% 26.51%

8-13 Return on Equity - Industry 26.00% 22.00% 24.00%8-14 Return on Equity - Company 23.93% 33.44% 35.28%

8-15 Debt to Equity - Industry 35% 38% 31%7-38 Debt to Equity - Company 50% 63% 63%

Home Wksh2

Wksh3 Wksh4

Wksh5 Wksh6

Wksh7

Wksh9 Wksh10

Wksh11 Wksh12

Wksh13 Wksh14

Wksh15 Wksh16

A1


B1

General Input

A2

Balance Sheet

B2

Income Statement

A3

Cash Flow Statement

B3

Key Financials

A4

Ratio Analysis

A5

Horizontal Analysis

B5

Vertical Analysis

A6


B6


A7


B7

Scenario Analysis

A8

Budget Analysis

B8

Final Budgets

C43

We added this ratio to our comparison since the benchmark data included this ratio. In our original ratio analysis on Worksheet 7, we did not include it since we wanted to focus on Operating Assets as opposed to Total Assets. However, feel free modify the ratios that you think are important to your specific analysis.

8-16 Times Interest Earned - Industry 40 38 367-39 Times Interest Earned - Company 33 50 39

We added the following two ratios to assess if the Company has excessive growth:4-13 Provision for Taxes (790) (1,005) (2,050)8-17 Trading Ratio - Company 1.24 1.37 1.52 8-18 Trading Ratio - Industry 1.26 1.28 1.31

8-19 Net Sales to Net Worth - Company 1.18 1.44 1.638-20 Net Sales to Net Worth - Industry 1.22 1.20 1.19

Source for Benchmark Data: Almanac of Business and Industrial Financial Ratios by Leo Troy, Prentice Hall

Graphs appear below for each of the above comparisons:

1996 1997 1998 1999 20000.00

0.10

0.20

0.30

0.40

0.50

0.60

Acid Ratio Comparison

Acid Test Ratio - Indus-tryAcid Test Ratio - Company

Periods

Ra

tio

1996 1997 1998 1999 20000.00

0.20

0.40

0.60

0.80

1.00

1.20

Current Ratio Comparison

Current Ratio - IndustryCurrent Ratio - Company

Periods

Ra

tio

C55

We excluded a provision for taxes to arrive at Net Worth (Total Shareholder Equity less Income Taxes)

C56

If this ratio is too large in relation to the industry average, it could indicate that we have excessive growth. A high ratio implies that the company is financing its fixed assets more and more from debt and liquidation of assets vs. internal sources of capital and thus, it may not be able to sustain such high growth rates. We can also monitor Net Sales to Net Worth as another indicator of runaway growth.

C59

If growth in Sales is not internally financed, then this ratio will grow due to external (debt) financing and this could lead to declining liquidity and much higher risk.

1996 1997 1998 1999 20000.00

0.20

0.40

0.60

0.80

1.00

1.20



Periods

Ra

tio

1996 1997 1998 1999 20000.00 2.00 4.00 6.00 8.00

10.00 12.00 14.00

Receivable Turnover Comparison

Receivable Turnover - IndustryReceivable Turnover - Company

Periods

Tu

rno

ve

r R

ate

1996 1997 1998 1999 20000 5

10 15 20 25 30 35 40 45

Receivable Collection Comparison

Days to Collect A/R - IndustryDays to Collect A/R - Company

Periods

Da

ys

to

Co

llec

t A

/R

1996 1997 1998 1999 20000.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

Inventory Turnover Comparison

Inventory Turnover - IndustryInventory Turnover - Company

Periods

Tu

rno

ve

r R

ate

1996 1997 1998 1999 20000.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00



Periods

Tu

rno

ve

r R

ate

1996 1997 1998 1999 20000

20

40

60

80

100

Inventory Days Comparison

Days in Inventory - IndustryDays in Inventory - Company

Periods

Da

ys

He

ld in

Inv

en

tory

1996 1997 1998 1999 20000.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 1.80

Asset Turnover Comparison

Asset Turnover - Indus-tryAsset Turnover - Company

Periods

Tu

rno

ve

r R

ate

1996 1997 1998 1999 20000.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

Gross Profit Margin

Gross Profit Margin - IndustryGross Profit Margin - Company

Periods

Gro

ss

Pro

fit

Ma

rgin

1996 1997 1998 1999 20000.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

Gross Profit Margin


Periods

Gro

ss

Pro

fit

Ma

rgin

1996 1997 1998 1999 20000.00%5.00%

10.00%15.00%20.00%25.00%30.00%35.00%

Net Profit Margin

Net Profit Margin - IndustryNet Profit Margin - Company

Periods

Ne

t P

rofi

t M

arg

in

1996 1997 1998 1999 20000.00%5.00%

10.00%15.00%20.00%25.00%30.00%35.00%40.00%

Return on Total Assets

Return on Total Assets - IndustryReturn on Total Assets - Company

Periods

Re

turn

on

To

tal A

ss

ets

1996 1997 1998 1999 20000.00%5.00%

10.00%15.00%20.00%25.00%30.00%35.00%40.00%

Return on Equity Comparison


Periods

Re

turn

on

Co

mm

on

Eq

uit

y

1996 1997 1998 1999 20000.00%5.00%

10.00%15.00%20.00%25.00%30.00%35.00%40.00%



Periods

Re

turn

on

To

tal A

ss

ets

1996 1997 1998 1999 20000%

10%

20%

30%

40%

50%

60%

70%

Debt to Equity Comparison

Debt to Equity - Indus-tryDebt to Equity - Company

Periods

De

bt

to E

qu

ity

Ra

tio

1996 1997 1998 1999 20000

10

20

30

40

50

60

Times Interest Earned

Times Interest Earned - IndustryTimes Interest Earned - Company

Periods

Tim

es

Inte

res

t E

arn

ed

1996 1997 1998 1999 20000

10

20

30

40

50

60



Periods

Tim

es

Inte

res

t E

arn

ed

1996 1997 1998 1999 20000.00

0.50

1.00

1.50

2.00

2.50

3.00

Trading Ratio Comparison

Trading Ratio - IndustryTrading Ratio - Company

Periods

Ra

tio

1996 1997 1998 1999 20000.00

0.50

1.00

1.50

2.00

2.50

3.00

Sales to Worth Comparison

Net Sales to Net Worth - IndustryNet Sales to Net Worth - Company

Periods

Ra

tio

You need to collect benchmark data on the respective industry for the subject company.Enter the benchmark data in the appropriate input cells. This information is used to generate trend line graphs in this worksheet. If you do not have any benchmark data,then fill in the highlighted yellow cell with numeric zero "0". The "industry" line will be null

Annual AnnualPeriod Period1999 2000

0.49 0.480.38 0.40

1.08 1.07 0.79 0.78

8.20 8.30 11.37 10.02

41 41 32 36

4.30 4.38 5.10 5.13

89 8272 71

1.68 1.69 0.77 0.80

62.00% 63.00%63.36% 62.96%

19.00% 20.00%31.98% 28.06%

34.00% 36.00%27.33% 23.23%

19.00% 20.00%33.42% 25.89%

34% 32%57% 53%

39 4337 35

(2,105) (2,660)1.44 1.49 1.30 1.27

1.45 1.631.22 1.20

Source for Benchmark Data: Almanac of Business and Industrial Financial Ratios by Leo Troy, Prentice Hall

1996 1997 1998 1999 20000.00

0.10

0.20

0.30

0.40

0.50

0.60

Acid Ratio Comparison

Acid Test Ratio - Indus-tryAcid Test Ratio - Company

Periods

Ra

tio

1996 1997 1998 1999 20000.00

0.20

0.40

0.60

0.80

1.00

1.20



Periods

Ra

tio

1996 1997 1998 1999 20000.00

0.20

0.40

0.60

0.80

1.00

1.20



Periods

Ra

tio

1996 1997 1998 1999 20000.00 2.00 4.00 6.00 8.00

10.00 12.00 14.00

Receivable Turnover Comparison

Receivable Turnover - IndustryReceivable Turnover - Company

Periods

Tu

rno

ve

r R

ate

1996 1997 1998 1999 20000 5

10 15 20 25 30 35 40 45

Receivable Collection Comparison

Days to Collect A/R - IndustryDays to Collect A/R - Company

Periods

Da

ys

to

Co

llec

t A

/R

1996 1997 1998 1999 20000.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00



Periods

Tu

rno

ve

r R

ate

1996 1997 1998 1999 20000.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00



Periods

Tu

rno

ve

r R

ate

1996 1997 1998 1999 20000

20

40

60

80

100

Inventory Days Comparison

Days in Inventory - IndustryDays in Inventory - Company

Periods

Da

ys

He

ld in

Inv

en

tory

1996 1997 1998 1999 20000.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 1.80

Asset Turnover Comparison

Asset Turnover - Indus-tryAsset Turnover - Company

Periods

Tu

rno

ve

r R

ate

1996 1997 1998 1999 20000.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

Gross Profit Margin


Periods

Gro

ss

Pro

fit

Ma

rgin

1996 1997 1998 1999 20000.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

Gross Profit Margin


Periods

Gro

ss

Pro

fit

Ma

rgin

1996 1997 1998 1999 20000.00%5.00%

10.00%15.00%20.00%25.00%30.00%35.00%

Net Profit Margin

Net Profit Margin - IndustryNet Profit Margin - Company

Periods

Ne

t P

rofi

t M

arg

in

1996 1997 1998 1999 20000.00%5.00%

10.00%15.00%20.00%25.00%30.00%35.00%40.00%



Periods

Re

turn

on

To

tal A

ss

ets

1996 1997 1998 1999 20000.00%5.00%

10.00%15.00%20.00%25.00%30.00%35.00%40.00%

Return on Equity Comparison


Periods

Re

turn

on

Co

mm

on

Eq

uit

y

1996 1997 1998 1999 20000.00%5.00%

10.00%15.00%20.00%25.00%30.00%35.00%40.00%



Periods

Re

turn

on

To

tal A

ss

ets

1996 1997 1998 1999 20000%

10%

20%

30%

40%

50%

60%

70%

Debt to Equity Comparison

Debt to Equity - Indus-tryDebt to Equity - Company

Periods

De

bt

to E

qu

ity

Ra

tio

1996 1997 1998 1999 20000

10

20

30

40

50

60



Periods

Tim

es

Inte

res

t E

arn

ed

1996 1997 1998 1999 20000

10

20

30

40

50

60



Periods

Tim

es

Inte

res

t E

arn

ed

1996 1997 1998 1999 20000.00

0.50

1.00

1.50

2.00

2.50

3.00

Trading Ratio Comparison

Trading Ratio - IndustryTrading Ratio - Company

Periods

Ra

tio

1996 1997 1998 1999 20000.00

0.50

1.00

1.50

2.00

2.50

3.00

Sales to Worth Comparison

Net Sales to Net Worth - IndustryNet Sales to Net Worth - Company

Periods

Ra

tio

Horizontal Analysis forX Y Z Corporation USA

Horizontal Analysis expresses change between periods as percentages for each account inthe financial statements. The basic formula for horizontal analysis is:% change = (most recent period - previous period) / previous period


Description 1996 1997 1998 1999 2000

Growth in Net Sales 32.50% 38.47% 26.77% 16.67% 10.93%

Cost of Goods Sold 29.00% 42.42% 16.78% 9.92% 12.15%

Growth in Gross Profits 2.90% -1.99% 5.76% 3.68% -0.64%

Growth in Interest Expense 16.50% 4.27% 77.05% 30.56% 7.80%Growth in Income Tax Expense 12.90% 27.22% 103.98% 2.68% 26.37%

Growth in Non Operating Expenses 3.80% 22.38% 106.13% 4.33% 24.17%

Growth in Minority Interest 96.00% 1676.47% -27.48% 38.36% 69.97%

Growth in Net Income 33.50% 69.85% 25.60% 26.78% -2.65%

Growth in Earnings Per Share 32.60% 73.80% 24.45% 22.73% -0.96%

Cash and Cash Equivalents 3.08% -4.04% -5.16% 10.77% -12.83%Short Term Marketable Securities 12.00% 50.00% -20.00% -50.00% 83.33%Accounts Receivable 26.70% 51.96% 18.06% 22.95% 35.11%Inventory 19.90% 35.32% 21.32% 15.15% 8.42%Other Current Assets 26.70% 32.18% 19.13% 20.44% -7.27%Total Current Assets 21.50% 29.01% 14.69% 18.06% 10.39%

Net Fixed Assets 17.80% 24.98% 24.02% 23.69% 2.83%Longterm Investments 6.20% -11.11% -62.50% 391.67% 53.39%Investments in Other Companies 0.00% -100.00% #DIV/0! #DIV/0! 64.80%Intangibles and Other Assets 16.50% 10.00% -4.55% 28.57% 44.44%Total Non Current Assets 32.50% 23.27% 22.14% 27.19% 4.84%

Growth in Total Assets 1.05% 24.58% 20.38% 25.14% 6.01%

Accounts Payable 26.20% 53.66% 4.44% 17.63% 24.03%Short Term Borrowings 33.50% 52.50% 40.98% 20.16% 14.52%Short Term Portion of LT Debt 16.70% 25.00% 66.67% 20.00% 20.00%Other Current Liabilities 12.80% 19.05% 18.40% 7.43% -18.18%Total Current Liabilities 38.02% 44.83% 18.09% 16.47% 12.77%

F39

If a cell has no value, it is set to 0 and Excel does not allow DIV (Division) by 0 and thus, the message: #DIV/0!

Longterm Debt / Borrowings 46.00% 50.86% 48.57% 38.46% 9.72%Other Longterm Liabilities 11.30% 15.38% -6.53% 26.96% 11.80%Total Non Current Liabilities 37.10% 38.12% 32.04% 36.02% 10.13%

Growth in Total Liabilities 31.05% 42.85% 22.08% 22.52% 11.87%

Preferred Equity 0.00% #DIV/0! #DIV/0! #DIV/0! #DIV/0!Common Equity 2.60% -1.91% 3.19% 1.01% 1.44%Additional Paid in Capital 1.50% -2.25% 5.29% 9.05% 0.04%Retained Earnings 38.00% 38.32% 39.57% 52.95% 32.92%Adj for Foreign Currency Transl -166.00% -56.36% -558.33% 290.36% 213.09%Treasury Stock 2.01% 3.91% 1.37% 2.70% 1.97%

Growth in Total Equity (Net Worth) 6.11% 14.43% 19.21% 27.00% 2.00%

Sustainable Growth Rate #1 13.05% 20.53% 21.36% 23.47% 18.06%Sustainable Growth Rate #2 10.88% 12.91% 13.91% 9.94% 7.83%

Growth in Market Capitalization 14.50% 24.69% 29.39% -6.32% -14.00%

C64

Net Worth is sometimes adjusted for Provision for Taxes.

C66

An indication of what can be sustained in growing sales revenues at current financial ratios and without having to issue new equity. The formula for calculating the sustainable growth rate is: g = Return on Equity x (1 - % of earnings paid out as dividends)

C67

A second approach to calculating sustainable growth rate is : Return on Equity x Dividend Payout Ratio

Vertical Analysis forX Y Z Corporation USA

Vertical analysis expresses financial statements as percentages. On the Balance Sheet, Total Assets is assigned 100% and on the Income Statement, Total Revenues is assigned 100%.

expressed in percentagesAnnual Annual Annual Annual AnnualPeriod Period Period Period Period

Account Title 1996 1997 1998 1999 2000

Cash and Cash Equivalents 5.77% 4.45% 3.50% 3.10% 2.55%Short Term Marketable Securities 0.06% 0.07% 0.05% 0.02% 0.03%Accounts Receivable 5.95% 7.26% 7.12% 6.99% 8.91%Inventory 5.86% 6.37% 6.42% 5.90% 6.04%Other Current Assets 5.07% 5.38% 5.33% 5.13% 4.49%Current Assets 22.72% 23.53% 22.41% 21.14% 22.02%

Net Fixed Assets 74.22% 74.46% 76.71% 75.83% 73.55%Longterm Investments 2.10% 1.50% 0.47% 1.83% 2.65%Investments in Other Companies 0.38% 0.00% 0.00% 0.78% 1.21%Intangibles and Other Assets 0.58% 0.51% 0.41% 0.42% 0.57%Non Current Assets 77.28% 76.47% 77.59% 78.86% 77.98%

Total Assets 100.00% 100.00% 100.00% 100.00% 100.00%

Accounts Payable 11.96% 14.75% 12.79% 12.03% 14.07%Short Term Borrowings 7.00% 8.57% 10.03% 9.63% 10.41%Short Term Portion of LT Debt 0.07% 0.07% 0.10% 0.09% 0.11%Other Current Liabilities 6.12% 5.85% 5.76% 4.94% 3.81%Total Current Liabilities 25.15% 29.24% 28.68% 26.69% 28.40%

Longterm Debt / Borrowings 6.77% 8.19% 10.11% 11.19% 11.58%Other Longterm Liabilities 3.79% 3.51% 2.73% 2.77% 2.92%Total NonCurrent Liabilities 10.56% 11.70% 12.84% 13.95% 14.50%

Total Liabilities 35.71% 40.94% 41.52% 40.65% 42.89%

Preferred Equity 0.00% 0.00% 0.00% 0.00% 0.00%Common Equity 11.92% 9.39% 8.05% 6.49% 6.21%Additional Paid in Capital 29.24% 22.94% 20.06% 17.48% 16.50%Retained Earnings 29.73% 33.01% 38.27% 46.77% 58.64%Adj for Foreign Currency Transl 1.60% 0.56% -2.14% -6.67% -19.71%Treasury Stock -8.19% -6.84% -5.76% -4.72% -4.54%Total Equity 64.29% 59.06% 58.48% 59.35% 57.11%

Total Liabilities & Equity 100.00% 100.00% 100.00% 100.00% 100.00%

Total Revenues 100.00% 100.00% 100.00% 100.00% 100.00%

Cost of Goods Sold 40.99% 42.17% 38.84% 36.58% 36.98%

Gross Profit 58.96% 57.78% 61.11% 63.36% 62.96%

Operating Expenses 27.42% 23.28% 21.96% 23.01% 26.04%

Non Operating Expenses 7.51% 6.64% 10.79% 9.65% 10.80%

Income Before Extra Ord Items 24.08% 27.91% 28.41% 30.76% 26.18%

Net Income 24.22% 29.71% 29.44% 31.98% 28.06%


Enter Your Forecast Periods => 2001 2002 2003 2004 2005

Pro Forma Income Statement

Gross Revenues 30,742 34,431 38,562 43,190 48,373Growth Assumptions 12.00% 12.00% 12.00% 12.00% 12.00%

Cost of Goods Sold (12,024) (13,467) (15,083) (16,893) (18,920)Growth Assumptions 39.11% 39.11% 39.11% 39.11% 39.11%

Operating Expenses (7,483) (8,381) (9,387) (10,513) (11,775)Growth Assumptions 24.34% 24.34% 24.34% 24.34% 24.34%

NonOperating Expenses (3,200) (3,200) (3,600) (3,600) (4,000)

ExtraOrdinary Items 650 650 650 700 700 Net Income 8,685 10,033 11,143 12,884 14,378

Pro Forma Cash Flow Statement

Sources of Operating Cash Flow:Net Income 8,685 10,033 11,143 12,884 14,378 Depreciation and Amortization 470 490 500 520 550(Increase) Decrease Defer Taxes 0 0 0 0 0 (Gain) Loss on Sale of Assets 15 9 2 3 6 (Increase) Decrease Current Assets (789) (996) (1,116) (1,249) (1,399)Increase (Decrease) Current Liab 1,073 1,291 1,446 1,620 1,814

Operating Cash Flow 9,453 10,827 11,975 13,777 15,348

Investment Sources of Cash Flow: Planned Sale of Assets 100 60 20 25 35 Planned Sale of Investments 2,200 2,100 1,900 1,800 1,700 Other Investment Sources to be used 0 0 0 0 0 Total Investment Sources of Cash 2,300 2,160 1,920 1,825 1,735

Planned Investments:Capital Expenditures (3,500) (3,000) (3,100) (2,700) (2,600)Acquisitions in Other Co's (500) (750) (1,200) (650) (350)Purchases of Investments (3,000) (3,500) (4,500) (6,000) (7,000)Total Investment Applications of Cash (7,000) (7,250) (8,800) (9,350) (9,950)

Cash Flow from Financing Activities:Proceeds from Loans & Debt 1,300 1,000 950 750 650 Proceeds from Minority Interest 20 60 80 90 100

C14

The usual order of preparing a set of pro forma (forecasted) financials is to begin first with the Income Statement since you need to start with your Revenue forecast. Once you complete the Pro Forma Income Statement, move to the Cash Flows Statement and finish with the Balance Sheet.

C16

Start your pro forma forecast with Revenues as the "independent" driver for certain other variables in the forecast.

C17

Revenue growth assumptions are based on the most recent information. We did not want to use an overall average from the historical data since there is a clear trend downward.

C19

Cost of Goods Sold is calculated by taking the % relationship found in our vertical analysis. We applied an average % to Gross Revenues in this worksheet to arrive at projected Cost of Goods Sold.

C20

We simply took the average % change from our vertical analysis.

C22

We applied an average % to Gross Revenues above to calculate our projected Operating Expenses.

C23

Just as we did with Cost of Goods Sold, we took an average % to establish what % of total revenue are represented by Operating Expenses.

C25

We estimated NonOperating Expenses by simply looking at our past historical information. We factored into our forecast some step ups in expenses as we move forward. If there were no trends, we might want to simply take an average.

C27

Just like our Non Operating Expenses, we simply estimated by looking back at our historical data. If there was no trend, we could have taken an average.

C29

This is our forecasted Net Income for the forecast period based on simple assumptions that we derived from our historical information.

C36

As calculated above

C37

Depreciation is projected based on planned future capital expenditures. Since no major expenditures of Fixed Assets are planned, we simply projected out incremental increases for future depreciation and amortization.

C38

No material changes are anticipated.

C39

Per review of past asset sales, most are sold for modest losses. The Financial Planning Department advised that a few sales would be made in the next two to three years. Estimated losses have been projected into our forecast.

C40

We estimated our change in current assets by looking back at our last current asset balance and comparing to a projected balance. The projected balance was calculated as a % of Revenues per review of our vertical analysis.

C41

Same as current assets, we went back to our vertical analysis and applied a % to Revenues to project a current liability balance. We compared this to the previous balance to get a change in current liabilities.

C46

Per discussion with Financial Planning and CFO, they did indicate that assets would be sold off since there is a recurring review of underperforming assets with subsequent sale.

C47

Per discussions with the Financial Planning Dept and the CFO, we estimated future expected sales of investments. We also reviewed the past historical trend.

C48

The CFO and Financial Planning indicated no other major investment sources would be used for generating cash.

C52

A Capital Expenditure Budget was compiled and showed a slowly declining investment pattern in Fixed Assets. The Company has plans to move more into investments in other companies and assets that provide higher returns.

C53

There was strong indication from management to start investing much more in other companies. Most of the current business lines in place are very mature with declining growth rates. A shift in strategy towards acquiring interest in high growth emerging companies that have similar product / service lines has been approved by Senior Management.

C54

The company will continue to purchase investments which will get converted over into possible acquisitions for improving growth rates.

C58

The company will rely less on debt financing for cash since it has high levels of unused internal financing that need to be applied and / or distributed as dividends / stock buybacks.

C59

Proceeds from interest in other companies is expected to grow as the company begins to invest more heavily in other companies.



Other Financing Activities 0 0 0 0 0 Total Financing Sources of Cash 1,320 1,060 1,030 840 750

Cash Flow Applied for Financing:Payments on Loans & Debt (1,500) (1,000) (600) (500) (500)Dividends Paid to Shareholders (2,500) (3,000) (4,000) (5,500) (7,000)Purchase / Retire Stock (2,000) (2,000) (1,500) (1,000) (500)Other Financing Activities 0 0 0 0 0 Total Financing Applications of Cash (6,000) (6,000) (6,100) (7,000) (8,000)

Total Change to Cash 73 797 25 92 (117)

Beginning Cash Balance 870 943 1,740 1,765 1,857 Forecasted Ending Balance 943 1,740 1,765 1,857 1,740

Pro Forma Balance Sheet

Cash and Cash Equivalents 943 1,740 1,765 1,857 1,740 Short Term Marketable Securities 0 0 0 0 0 Accounts Receivable 3,074 3,443 3,856 4,319 4,837 Inventory 2,459 2,754 3,085 3,455 3,870 Other Current Assets 1,998 2,238 2,507 2,807 3,144 Total Current Assets 8,475 10,175 11,213 12,438 13,591

Fixed Assets 31,600 34,600 37,700 40,400 43,000 Accumulated Depreciation (3,480) (3,970) (4,470) (4,990) (5,540)Net Fixed Assets 28,120 30,630 33,230 35,410 37,460 Longterm Investments 1,705 3,105 5,705 9,905 15,205 Investments in Other Companies 912 1,662 2,862 3,512 3,862 Intangibles and Other Assets 200 240 320 400 650Total Non Current Assets 30,937 35,637 42,117 49,227 57,177

Total Assets 39,412 45,812 53,330 61,665 70,768

Accounts Payable 5,226 5,853 6,556 7,342 8,223 Short Term Borrowings 3,689 4,132 4,627 5,183 5,805 Short Term Portion of LT Debt 30 30 25 20 15Other Current Liabilities 1,845 2,066 2,314 2,591 2,902 Total Current Liabilities 10,790 12,081 13,522 15,136 16,945

Longterm Debt / Borrowings 3,750 3,750 4,100 4,350 4,500 Other Longterm Liabilities 700 750 800 800 800 Total Non Current Liabilities 4,450 4,500 4,900 5,150 5,300

Total Liabilities 15,240 16,581 18,422 20,286 22,245

C64

Payments on debt are expected to decline as more internal sources of financing are applied.

C65

Continued strong dividend payments will be made in order to provide a strong yield for investors.

C66

Due to declining stock prices, the company will start a stock buyback program. The program will slowly decline over time as the stock price recovers.

C78

Balance is carried forward per the Cash Flow Statement.

C79

We did forecast any material balances related to Marketable Securities.

C80

Since receivable balances usually move with revenues, we projected this balance as a % of projected revenues. Ref 11-1 * %'s as indicated in our Vertical Analysis. For Accts Receivable we used a flat 10%

C81

Same concept as receivables, we applied a % of Revenues in arriving at inventory. The % was derived by looking at our vertical analysis. For inventory, we used a flat 8% x Total Revenues per Ref 11-1

C82

Once again, we simply applied a % (6.5% in this case) to Total Revenues in arriving at Other Current Assets. The 6.5% was derived by looking at our vertical analysis.

C83

Sum of all current assets. We also compared this total to % of Revenues in arriving at Current Assets and did not see any material differences.

C85

We simply brought the account balance forward, adjusted it per our projections in the Cash Flow Statement.

C86


C88

We simply brought the account balance forward and adjusted for changes per the Cash Flow Statement.

C89


C90

Projected out based on increasing acquisitions in other companies.

C95

Projected based on % of Revenues per our Vertical Analysis. Same as what we did with most of our current assets.

C96

Same concept as for accounts payable and current assets, we took a percent per our Vertical Analysis and applied it to Total Revenues per this worksheet.

C97

Estimated based on past financials and what we expect to happen with longterm debt borrowings.

C98

Same concept as Accounts Payable, estimated based on % of Revenues per Vertical Analysis.

C101

We simply brought forward our longterm liability balance by adding proceeds per the Cash Flow Statement and deducting payments on debt per the Cash Flow Statement.

C102

Estimated based on past historical trends and no anticipated changes in the use of Other Longterm Liab (such as leasing arrangements).



Preferred Equity 0 0 0 0 0 Common Equity 2,200 2,200 2,200 2,200 2,200 Additional Paid in Capital 5,700 5,700 5,700 5,700 5,700 Retained Earnings 26,190 33,222 40,365 47,748 55,126 Adj for Foreign Currency Transl (5,000) (4,000) (2,500) (1,500) (500)Treasury Stock (3,550) (5,550) (7,050) (8,050) (8,550)Total Equity 25,540 31,572 38,715 46,098 53,976

External Financing Required (EFR) (1,368) (2,341) (3,807) (4,720) (5,453)

C108

No changes are expected with common equity. We simply used a flat amount per prior financials.

C109

This is an estimated flat amount per past financials. It could change once we start our stock buyback program.

C110

This is an estimate based on simply bringing the balance forward by adding Net Income and subtracting Dividends per above.

C112

This is a rough estimate based on the prior balance, brought forward by simply looking at what we expect to pay for the buyback of stock within our Cash Flow Statement per above.

C115

The out of balance amount represents either a deficit (requires internal and/or external financing) or a surplus - additional forecasted income closed to Retained Earnings.

ProForma Financials (Linear Trend Model)X Y Z Corporation USA

A set of pro forma (forecasted) financial statements are generated using the results ofthe historical analysis in the previous worksheets. A statistical method known as

active linear regression is used to predict future values. If you have important assumptions that are important to the forecast, then these assumptions should over-ride thelinear calculations since we want our forecast to be as accurate as possible.Key Point => If your historical information has gradual trends, then linear regressionis an appropriate model for forecasting. However, if your historical information has distinct steps up or down, then you should consider using a smoothing model .

Before we adopt a regression model, it's a good idea to generate a scatter graph of the actual dataand observe if there is a clear trend for fitting a straight regression line into the data:

The calculation of linear values is determined by defining the slope of the line and the y intercept:Order Total Rev Linear

Formula for Linear Trendline: Year variable x actual y Value y1996 1 12,076 12,683

y = ( m * x ) + b 1997 2 16,719 16,5591998 3 21,196 20,435

m: slope of line 1999 4 24,737 24,311x: independent variable 2000 5 27,448 28,188b: y intercept 2001 6 32,064 2002 7 35,940 2003 8 39,816

2004 9 43,6922005 10 47,569

The degree of linear fit with the actual data can be expressed as R Square 0.9888

Annual Annual Annual Annual

Period Period Period Period

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1994 1996 1998 2000 20020

5,00010,00015,00020,00025,00030,000

Total Revenues

Total Revenues

Periods

To

tal R

even

ues

A1


B1

General Input

A2

Balance Sheet

B2

Income Statement

A3

Cash Flow Statement

B3

Key Financials

A4

Ratio Analysis

B4

Benchmark Analysis

A5

Horizontal Analysis

B5

Vertical Analysis

A6


B6


A7


B7

Scenario Analysis

A8

Budget Analysis

B8

Final Budgets

G35

You can also use the =Forecast or =Trend function in Excel to calculate linear values. We used the =Trend function for our forecast which follows below

2001 2002 2003 2004

Pro Forma Income Statement

12-1 Gross Revenues 32,064 35,940 39,816 43,692

12-2 Cost of Goods Sold (11,607) (12,847) (14,087) (15,327)

12-3 Operating Expenses (7,750) (8,693) (9,636) (10,579)

12-4 Operating Income 12,707 14,400 16,093 17,786

12-5 Non Operating Expenses (3,549) (4,088) (4,627) (5,166)

4-25 Extra Ordinary Items 271 271 271 271

Net Income 9,429 10,584 11,738 12,892


Sources of Operating Cash Flow:Net Income 9,429 10,584 11,738 12,892 Depreciation and Amortization 470 490 500 520 (Increase) Decrease Defer Taxes 0 0 0 0 (Gain) Loss on Sale of Assets 15 9 2 3 (Increase) Decrease Current Assets (1,146) (1,047) (1,047) (1,047)Increase (Decrease) Current Liab 1,535 1,357 1,357 1,357

Operating Cash Flow 10,304 11,393 12,550 13,725

Investment Sources of Cash Flow:Planned Sale of Assets 100 60 20 25 Planned Sale of Investments 2,200 2,100 1,900 1,800 Other Investment Sources to be used 0 0 0 0 Total Investment Sources of Cash 2,300 2,160 1,920 1,825

Planned Investments:Capital Expenditures (3,500) (3,000) (3,100) (2,700)Acquisitions (500) (750) (1,200) (650)Purchases of Investments (3,000) (3,500) (4,500) (6,000)Total Investment Applications of Cash (7,000) (7,250) (8,800) (9,350)

Cash Flow from Financing Activities:Proceeds from Loans & Debt 1,300 1,000 950 750 Proceeds from Minority Interest 20 60 80 90 Other Financing Activities 0 0 0 0 Total Financing Sources of Cash 1,320 1,060 1,030 840

Cash Flow Applied for Financing:

C55

Gross Revenues have been projected out along a straight linear line using regression analysis. The historical information is the source of the analysis using the TREND function in Microsoft Excel.

C57

We also applied linear regression to forecast our Cost of Goods Sold since it may move slightly differently than Revenues.

C59

We also applied regression analysis to forecast our Operating Expenses.

C61

Sum of Gross Revenues, Cost of Goods Sold, and Operating Expenses.

C63

Since there appears to be a gradual trend in our Non Operating Expenses, we also applied linear regression to forecast this item.

C65

Once again, we simply took an average from our historical data to project out Extra Ordinary Items. If there is a trend, then we may need to consider using regression analysis.

C67

This is our forecasted Net Income based on linear regression analysis.

C73

Carried forward per above.

C74

Carried forward same estimates as used in the Simple Model - Worksheet 11.

C75


C76


C77

We applied the same concept we used in the Simple Model, apply a % derived from our vertical analysis to Total Revenues.

C78

We applied the same concept we used in the Simple Model, apply a % derived from our vertical analysis to Total Revenues.

C83

Carried over same estimates from the Simple Model - Worksheet 11.

C84


C85


C89


C90


C91


C95


C96


C97


Payments on Loans & Debt (1,500) (1,000) (600) (500)Dividends Paid to Shareholders (2,500) (3,000) (4,000) (5,500)Purchase / Retire Stock (2,000) (2,000) (1,500) (1,000)Other Financing Activities 0 0 0 0 Total Financing Applications of Cash (6,000) (6,000) (6,100) (7,000)

Total Change to Cash 924 1,363 600 40

Beginning Cash Balance 870 1,794 3,156 3,756 Forecasted Ending Balance 1,794 3,156 3,756 3,796


Cash and Cash Equivalents 1,794 3,156 3,756 3,796 Short Term Marketable Securities 0 0 0 0 Accounts Receivable 3,206 3,594 3,982 4,369 Inventory 2,565 2,875 3,185 3,495 Other Current Assets 2,084 2,336 2,588 2,840 Total Current Assets 9,649 11,962 13,511 14,501

Fixed Assets 31,600 34,600 37,700 40,400 Accumulated Depreciation (3,480) (3,970) (4,470) (4,990)Net Fixed Assets 28,120 30,630 33,230 35,410 Longterm Investments 1,705 3,105 5,705 9,905 Investments in Other Companies 912 1,662 2,862 3,512 Intangibles and Other Assets 200 240 320 400 Total Non Current Assets 30,937 35,637 42,117 49,227

Total Assets 40,586 47,599 55,628 63,728

Accounts Payable 5,451 6,110 6,769 7,428 Short Term Borrowings 3,848 4,313 4,778 5,243 Short Term Portion of LT Debt 30 30 25 20 Other Current Liabilities 1,924 2,156 2,389 2,622 Total Current Liabilities 11,252 12,609 13,961 15,312

Longterm Debt / Borrowings 3,750 3,750 4,100 4,350 Other Longterm Liabilities 700 750 800 800 Total Non Current Liabilities 4,450 4,500 4,900 5,150

Total Liabilities 15,702 17,109 18,861 20,462

Preferred Equity 0 0 0 0 Common Equity 2,200 2,200 2,200 2,200 Additional Paid in Capital 5,700 5,700 5,700 5,700 Retained Earnings 26,934 34,518 42,256 49,648 Adj for Foreign Currency Transl (5,000) (4,000) (2,500) (1,500)Treasury Stock (3,550) (5,550) (7,050) (8,050)Total Equity 26,284 32,868 40,606 47,998

C115

Carried forward from above.

C116

No material balance was anticipated.

C117

We applied a % of Total Revenues. The % was based on the Vertical Analysis - Worksheet 10.

C118


C119


C122


C123


C125


C126


C127


C132


C133


C134

We simply posted the same projection from our Simple Model in Worksheet 11.

C135


C138

We posted the same estimate used in the Simple Model on Worksheet 11.

C139

We posted the same estimate used in the Simple Model on Worksheet 11.

C145

Posted the same estimate used in the Simple Model on Worksheet 11.

C146


C148


C149


External Financing Required (EFR) (1,401) (2,379) (3,838) (4,732)

C152


Before we adopt a regression model, it's a good idea to generate a scatter graph of the actual data

The calculation of linear values is determined by defining the slope of the line and the y intercept:Slope Intercept

m factor b factor3876.20 8806.60

AnnualPeriod

2005

47,569

(16,567)

(11,522)

19,480

(5,705)

271

14,046

14,046 550

0 6

(1,047)1,357

14,912

35 1,700

0 1,735

(2,600)(350)

(7,000)(9,950)

650 100

0 750

(500)(7,000)

(500)0

(8,000)

(553)

3,796 3,243

3,243 0

4,757 3,805 3,092

14,897

43,000 (5,540)37,460 15,205

3,862 650

57,177

72,074

8,087 5,708

15 2,854

16,664

4,500 800

5,300

21,964

0 2,200 5,700

56,694 (500)

(8,550)55,544

(5,433)

ProForma Financials (Exponential Smoothing / Weighted Moving Average)X Y Z Corporation USA

A set of pro forma (forecasted) financial statements are generated using the results ofthe historical analysis in the previous worksheets. A statistical method known as exponential smoothing is used to plot a trend over historical data. Additionally, we

active can use a weighted moving average to forecast future periods. Key Point => If you have a general upward historical trend, weighted average will tendto underestimate forecasted values and vice versa (downward trend = overestimate).

Exponential Smoothing and Weighted Moving Averages for Total Revenues:

Years => 1996 1997 1998Total Revenues - Historical 12,076 16,719 21,196 Total Revenues - Exponential 12,076 12,076 16,719 Total Revenues - Wt Moving Avg 11,105 15,230 18,890

Smoothing Factor must be between 0 and 1 0 1 Total weights should add up to =>Set Smoothing Factor 1.00 Assign weights to appropriate periods 0.00% 1.50% 4.50%

Find the Optimal Smoothing Factor:Total Exponent

Revenues Amounts Difference12,076 12,076 0 16,719 12,076 4,643 21,196 16,719 4,477 24,737 21,196 3,541 27,448 24,737 2,711

Mean Squared Error

Find the Optimal Moving Weights:

Total WeightedRevenues Amounts Difference

12,076 11,105 971 16,719 15,230 1,489 21,196 18,890 2,306 24,737 21,605 3,132 27,448 22,965 4,483

Mean Squared Error

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2001 2002 2003 2004 20050

5,000

10,000

15,000

20,000

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30,000

Exponential Comparison

Total Revenues - His-torical Total Revenues - ExponentialTotal Revenues - Wt Moving Avg

Periods

To

tal R

ev

en

ue

s

A1


B1

General Input

A2

Balance Sheet

B2

Income Statement

A3

Cash Flow Statement

B3

Key Financials

A4

Ratio Analysis

B4

Benchmark Analysis

A5

Horizontal Analysis

B5

Vertical Analysis

A6


B6


A7


B7

Scenario Analysis

A8

Budget Analysis

B8

Final Budgets

C14

We start by entering our historical data into the worksheet so we can reference this data for exponential smoothing.

C15

Exponential smoothing usually starts with the historical value as a start point and moves forward using a "dampening" factor. The dampening factor is a weight between 0 and 1. The higher the dampening factor, the more responsive the analysis is to changes in the historical data.

D15

Since we do not have data prior to our initial period, we will start exponential smoothing with the same value as our historical data.

C16

We can also use a simple moving average by assigning weights to prior periods. In order to calculate a moving average for the historical period, we had to go back to previous years and manually calculate the moving average.

C18

Generally, the smoothing factor is less than 1.0, such as .70 and a dampening factor determines the responsiveness of the exponential curve to the data. The sum of the smoothing factor + the dampening factor = 1.0

C20

Weights or %'s are assigned to breakout how you want to calculate the moving average.

C22

We can find the optimal smoothing factor for exponential smoothing by minimizing the Mean Squared Error. Minimizing the Mean Squared Error is a common practice used for optimalization of financial models. Additionally, we can use the Solver application in Excel to solve for the optimal value we are looking for. Go the toolbar and select: Tools => Solver Target cell is the Mean Squared Error (cell G30) Equal is set to min since we want to minimize the target cell Variable cell is factor we want to optimize (in this case it is the smoothing factor in cell D19) Two Constraints are added: D19 <= 1 (cell E18) D19 >= 0 (cell D18) Hit Solve and a report worksheet is inserted into the spreadsheet. See Answer Report 1

C33

We originally assigned three weights for the most three recent years to get a moving average. However, once we used Solver, we found that the optimal moving weights were for four periods and thus, we needed to change our formula. We applied Solver (Tools > Solver) to minimize the Mean Squared Error as follows: Set Cell is the Mean Squared Error in Cell G41. We want to minimize the Set Target Cell. The (changing cells) variables are the weights which appear in the cell range D20:H20 We added three constraints: D20:H20 <= E18 (we want all our weights to be less than or equal to 0) D20:H20 >= D18 (all of our weights must be at least equal to 0) I20 = E18 (the sum of all weights must add up to 1) Once we hit solve, Solver replaces the weight percents with the set of weights that minimizes the Mean Squared Error. Results appeared in Answer Report 2.

Annual Annual AnnualPeriod Period Period

2001 2002 2003Pro Forma Income Statement

Gross Revenues 26,070 26,413 26,316

Cost of Goods Sold (10,197) (10,207) (9,860)

Operating Expenses (6,346) (6,226) (6,229)

Operating Income 9,527 9,979 10,227

NonOperating Expenses (3,200) (3,200) (3,600)

ExtraOrdinary Items 650 650 650 Net Income 6,977 7,429 7,277


Sources of Operating Cash Flow:Net Income 6,977 7,429 7,277 Depreciation and Amortization 470 490 500 (Increase) Decrease Defer Taxes 0 0 0(Gain) Loss on Sale of Assets 15 9 2 (Increase) Decrease Current Assets 472 (92) 26 Increase (Decrease) Current Liab (562) 120 (34)

Operating Cash Flow 7,372 7,956 7,771

Investment Sources of Cash Flow:Planned Sale of Assets 100 60 20 Planned Sale of Investments 2,200 2,100 1,900

2001 2002 2003 2004 20050

5,000

10,000

15,000

20,000

25,000

30,000



Periods

To

tal R

ev

en

ue

s

C71

Gross Revenues have been projected out per our analysis above. No adjustments have been made for growth. Therefore, this forecast represents a "worse case" scenario.

C73

We simply applied the % of Cost of Goods Sold reflected in our vertical analysis worksheet. We took the average of the vertical %'s.

C75

We also used the vertical analysis % to forecast our Operating Expenses.

C77

Sum of Gross Revenues, Cost of Goods Sold, and Operating Expenses.

C79

We estimated NonOperating Expenses by simply looking at our past historical information. We factored into our forecast some step ups in expenses as we move forward. If there were no trends, we might want to simply take an average.

C81

Just like our Non Operating Expenses, we simply estimated by looking back at our historical data. If there was no trend, we could have taken an average.

C83

This is our forecasted Net Income based on linear regression analysis.

C89

Carried forward per above.

C90

Depreciation is projected based on planned future capital expenditures. Since no major expenditures of Fixed Assets are planned, we simply projected out incremental increases for future depreciation and amortization.

C91

No material changes are expected.

C92

Per review of past asset sales, most are sold for modest losses. The Financial Planning Department advised that a few sales would be made in the next two to three years. Estimated losses have been projected into our forecast.

C93

We estimated our change in current assets by looking back at our last current asset balance and comparing to a projected balance. The projected balance was calculated as a % of Revenues per review of our vertical analysis.

C94

Same as current assets, we went back to our vertical analysis and applied a % to Revenues to project a current liability balance. We compared this to the previous balance to get a change in current liabilities.

C99

Per discussion with Financial Planning and CFO, they did indicate that assets would be sold off since there is a recurring review of underperforming assets with subsequent sale.

C100

Per discussions with the Financial Planning Dept and the CFO, we estimated future expected sales of investments. We also reviewed the past historical trend.

Other Investment Sources to be used 0 0 0 Total Investment Sources of Cash 2,300 2,160 1,920

Planned Investments:Capital Expenditures (3,500) (3,000) (3,100)Acquisitions (500) (750) (500)Purchases of Investments (2,000) (3,000) (3,000)Total Investment Applications of Cash (6,000) (6,750) (6,600)

Cash Flow from Financing Activities:Proceeds from Loans & Debt 1,300 2,000 3,000 Proceeds from Minority Interest 20 60 80 Other Financing Activities 0 0 0 Total Financing Sources of Cash 1,320 2,060 3,080

Cash Flow Applied for Financing:Payments on Loans & Debt (1,500) (1,800) (2,500)Dividends Paid to Shareholders (2,500) (3,000) (4,000)Purchase / Retire Stock 0 0 0 Other Financing Activities 0 0 0 Total Financing Applications of Cash (4,000) (4,800) (6,500)

Total Change to Cash 992 626 (329)

Beginning Cash Balance 870 1,862 2,488 Forecasted Ending Balance 1,862 2,488 2,159


Cash and Cash Equivalents 1,862 2,488 2,159 Short Term Marketable Securities 0 0 0 Accounts Receivable 2,607 2,641 2,632 Inventory 2,086 2,113 2,105 Other Current Assets 1,695 1,717 1,711 Total Current Assets 8,249 8,959 8,606

Fixed Assets 31,600 34,600 37,700 Accumulated Depreciation (3,480) (3,970) (4,470)Net Fixed Assets 28,120 30,630 33,230 Longterm Investments 705 1,605 2,705 Investments in Other Companies 912 1,662 2,162 Intangibles and Other Assets 75 100 150 Total Non Current Assets 29,812 33,997 38,247

Total Assets 38,061 42,956 46,853

Accounts Payable 4,432 4,490 4,474 Short Term Borrowings 3,128 3,170 3,158 Short Term Portion of LT Debt 30 30 25 Other Current Liabilities 1,564 1,585 1,579

C101

The CFO and Financial Planning indicated no other major investment sources would be used for generating cash.

C105

A Capital Expenditure Budget was compiled and showed a slowly declining investment pattern in Fixed Assets. The Company has plans to move more into investments in other companies and assets that provide higher returns. In this forecast, we projected sluggish growth related to Net Assets because of the poor sales forecast.

C106

There was strong indication from management to start investing much more in other companies. Most of the current business lines in place are very mature with declining growth rates. A shift in strategy towards acquiring interest in high growth emerging companies that have similar product / service lines has been approved by Senior Management. However, under this forecast, we only planned a modest investment strategy over the next three years because this forecast has much slower growth.

C107

A more conservative approach to purchasing investments is adopted under this forecast compared to the other forecast since this forecast has much lower revenue growth.

C117

Payments on debt are expected to decline as more internal sources of financing are applied.

C118

Dividends may have to get decline in later years unless higher growth rates can be obtained.

C119

Under the other forecast, we started a stock buyback program. However, under this forecast we did not initiate a stock buyback program due to much lower revenue growth.

C131

Balance is carried forward per the Cash Flow Statement.

C132

We did forecast any material balances related to Marketable Securities.

C133

Since receivable balances usually move with revenues, we projected this balance as a % of projected revenues. Ref 11-1 * %'s as indicated in our Vertical Analysis. For Accts Receivable we used a flat 10%

C134

Same concept as receivables, we applied a % of Revenues in arriving at inventory. The % was derived by looking at our vertical analysis. For inventory, we used a flat 8% x Total Revenues per Ref 11-1

C135

Once again, we simply applied a % (6.5% in this case) to Total Revenues in arriving at Other Current Assets. The 6.5% was derived by looking at our vertical analysis.

C138


C139


C141


C142


C143


C148


C149


C150

Estimated based on past financials and what we expect to happen with longterm debt borrowings.

C151


Total Current Liabilities 9,155 9,274 9,236

Longterm Debt / Borrowings 3,750 3,950 4,450 Other Longterm Liabilities 700 750 800 Total Non Current Liabilities 4,450 4,700 5,250

Total Liabilities 13,605 13,974 14,486

Preferred Equity 0 0 0 Common Equity 2,200 2,200 2,200 Additional Paid in Capital 5,700 5,700 5,700 Retained Earnings 17,505 14,505 10,505 Adj for Foreign Currency Transl (5,000) (3,500) (1,000)Treasury Stock (1,550) (1,550) (1,550)Total Equity 18,855 17,355 15,855

External Financing Required (EFR) 5,602 11,627 16,513

C154

We simply brought the balance forward and adjusted for cash flows related to debt. In this forecast, we projected higher levels of debt financing to support sales.

C155

Estimated based on past historical trends and no anticipated changes in the use of Other Longterm Liab (such as leasing arrangements).

C165

We simply carried forward the balance from the historical Balance Sheet.

C168


ProForma Financials (Exponential Smoothing / Weighted Moving Average)

1999 2000 2001 2002 2003 2004 200524,737 27,448 21,196 24,737 21,605 22,965 26,070 26,413 26,316 26,355 26,340

Total weights should add up to => 100.00%

34.50% 59.50% 100.00%

Square0

21,557,449 20,043,529 12,538,681

7,349,521 12,297,836

Square942,841

2,217,121 5,317,636 9,809,424

20,100,607 7,677,526

2001 2002 2003 2004 20050

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30,000



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26,355 26,340

(9,694) (9,740)

(6,464) (6,859)

10,197 9,740

(3,600) (4,000)

700 700

7,297 6,440

7,297 6,440 520 550

0 03 6

(11) 4 14 (5)

7,824 6,995

25 35 1,800 1,700

2001 2002 2003 2004 20050

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Periods

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0 0 1,825 1,735

(3,900) (4,600)0 0

(1,000) (1,000)(4,900) (5,600)

4,500 7,000 90 100

0 0 4,590 7,100

(4,000) (6,000)(4,000) (3,000)

0 0 0 0

(8,000) (9,000)

1,339 1,230

2,159 3,497 3,497 4,728

3,497 4,728 0 0

2,636 2,634 2,108 2,107 1,713 1,712 9,955 11,181

41,600 46,200 (4,990) (5,540)36,610 40,660

1,905 1,205 2,162 2,162

150 100 40,827 44,127

50,782 55,308

4,480 4,478 3,163 3,161

20 15 1,581 1,580

9,244 9,234

4,950 5,950 800 800

5,750 6,750

14,994 15,984

0 0 2,200 2,200 5,700 5,700 6,505 3,505

0 0 (1,550) (1,550)12,855 9,855

22,932 29,469

Scenario Analysis forX Y Z Corporation USA

We can copy our forecast into a new worksheet and do scenario analysis and goal-seek analysis.Although Microsoft Excel includes Scenario Manager, it can be easier and quicker to simply do our scenario analysis manually. We can use Goal Seek to find a value for a cell given a corresponding

active formula in another cell.

Annual Annual AnnualPeriod Period Period2001 2002 2003

Pro Forma Income Statement (Simple Projection Method)Scenario => Non Operating Expenses will decline by $ 100,000 in year 2003 and again in year 2005:

Gross Revenues 30,742 34,431 38,562 Cost of Goods Sold (12,024) (13,467) (15,083)Operating Expenses (7,483) (8,381) (9,387)NonOperating Expenses (3,200) (3,200) (3,100)ExtraOrdinary Items 650 650 650 Net Income 8,685 10,033 11,643

Instead of copying our forecast into this worksheet, we can simply do scenario analysis directly inthe forecast itself.

Pro Forma Income Statement (Linear Trend Method)Goal Seek => What total revenues are required if Net Income must be $ 13.5 million in Year 2004?

Gross Revenues 32,064 35,940 39,816 Cost of Goods Sold (11,607) (12,847) (14,087)Operating Expenses (7,750) (8,693) (9,636)Non Operating Expenses (3,549) (4,088) (4,627)Extra Ordinary Items 271 271 271 Net Income (formula cells) 9,430 10,584 11,738

Do not change formula cells (goals) to valueswhen using Goal Seek (Tools > Goal Seek)

This is the target cell that Goal Seek is seekingto change per the value 13,500 in cell G34

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B1

General Input

A2

Balance Sheet

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Income Statement

A3

Cash Flow Statement

B3

Key Financials

A4

Ratio Analysis

B4

Benchmark Analysis

A5

Horizontal Analysis

B5

Vertical Analysis

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B6


A7


B7

Scenario Analysis

A8

Budget Analysis

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Final Budgets

C27

Goal Seek finds the value for one cell in a spreadsheet given a "goal" in another cell that contains a formula. Since the "seek" cell must be a value, we need to change the cell or cells into values. In our example, we simply copy the forecast we want to analyze. Next, we changed the cells from formula's to values by copying the cells over themselves and selecting Paste Special / click on the Values option and then paste.

We can copy our forecast into a new worksheet and do scenario analysis and goal-seek analysis.Although Microsoft Excel includes Scenario Manager, it can be easier and quicker to simply do our scenario analysis manually. We can use Goal Seek to find a value for a cell given a corresponding


Scenario => Non Operating Expenses will decline by $ 100,000 in year 2003 and again in year 2005:

43,190 48,373 (16,893) (18,920)(10,513) (11,775)

(3,100) (3,000)700 700

13,384 15,378

Instead of copying our forecast into this worksheet, we can simply do scenario analysis directly in

Goal Seek => What total revenues are required if Net Income must be $ 13.5 million in Year 2004?

44,301 47,569 (15,327) (16,567)(10,579) (11,522)

(5,166) (5,705)271 271

13,500 14,046

Do not change formula cells (goals) to valueswhen using Goal Seek (Tools > Goal Seek)

This is the target cell that Goal Seek is seekingto change per the value 13,500 in cell G34

Worst Case

-5752.08691-3964.02317

-1096.624.6

Budget Analysis forX Y Z Corporation USA

Once we complete our forecast, we can summarize and review it before finalizing itinto the form of budgets. We also need to summarize our assumptions that shouldgo into our final budget. We can start our budget process by reviewing the differentrevenue forecast:

active

Annual Annual AnnualPeriod Period Period2001 2002 2003

Summarize Revenue Forecast:Simple Projection Model 30,742 34,431 38,562Linear Trend Model 32,064 35,940 39,816 Wt Moving Avg Model 26,070 26,413 26,316 Declining Growth Model 29,644 31,422 32,679 Historical Data 12,076 16,719 21,196

Projection using declining growth rates:

Gross Revenues 29,644 31,422 32,679

In addition to using linear models for forecasting, we can apply several non-linear (curve) models: Logarithmic - Used when rate of change in data suddenly shifts upward or downward. Power - Used when rate of change in data occurs at a specific rate.

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2001 2002 2003 2004 20050

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Forecast Comparisons

Simple Projection ModelLinear Trend ModelWt Moving Avg ModelDeclining Growth ModelHistorical Data

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B1

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A2

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Income Statement

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Cash Flow Statement

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Key Financials

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Ratio Analysis

B4

Benchmark Analysis

A5

Horizontal Analysis

B5

Vertical Analysis

A6


B6


A7


B7

Scenario Analysis

A8

Budget Analysis

B8

Final Budgets

C21

After reviewing all models on a graph and noting that the growth rates are declining for Revenues, a final "declining" model was added to fill out all possible forecast.

Exponential - Used when rate of change is increasing or decreasing at ever higher rates. Polynomial - Used when rate of change fluctuates with no pattern.

Logarithmic Trend Actual Predicted

Formula for Logarithmic Trendline x factor Values Value y1 12,076 (11,242)

y = ( c * LN (x)) - b 2 16,719 (4,587)3 21,196 (695)

LN: Natural Logarithm 4 24,737 2,067 5 27,448 4,210

6 5,960 7 7,440

8 8,722 9 9,853

10 10,865

Power TrendlineActual Predicted

y = b * x^c x factor Values Value y1 12,076 11,951 2 16,719 17,109 3 21,196 21,104 4 24,737 24,493 5 27,448 27,491 6 30,212 7 32,721 8 35,063 9 37,267

10 39,356

Exponential TrendlineActual Predicted

x factor Values Value yy = b * EXP ( c * x ) 1 12,076 13,061

2 16,719 16,007 3 21,196 19,618 4 24,737 24,043 5 27,448 29,465 6 36,111 7 44,256 8 54,238 9 66,472

10 81,464

Polynomial TrendlineActual Predicted

y = (c2 * x^2) + (c1 * x^1) + b x factor Values Value y1 12,076 11,997 2 16,719 16,902

C55

A logarithmic trendline is a best-fit curved line that is most useful when the rate of change in the data increases or decreases quickly and then levels out. A logarithmic trendline can use negative and/or positive values.

C69

A power trendline is a curved line that is best used with data sets that compare measurements that increase at a specific rate — for example, the acceleration of a race car at 1-second intervals. You cannot create a power trendline if your data contains zero or negative values.

C83

An exponential trendline is a curved line that is most useful when data values rise or fall at increasingly higher rates. You cannot create an exponential trendline if your data contains zero or negative values.

C97

A polynomial trendline is a curved line that is used when data fluctuates. It is useful, for example, for analyzing gains and losses over a large data set. The order of the polynomial can be determined by the number of fluctuations in the data or by how many bends (hills and valleys) appear in the curve. An Order 2 polynomial trendline generally has only one hill or valley. Order 3 generally has one or two hills or valleys. Order 4 generally has up to three.

C99

If you have a third order, then the formula would be: y = (c3 * x^3) + (c2 * x^2) + (c1 * x^1) + b and so forth.

3 21,196 21,121 4 24,737 24,654 5 27,448 27,502 6 29,664 7 31,140 8 31,930 9 32,035

10 31,454

Summarize Non Linear Curves on Graph:1996 1997 1998

Logarithmic Trendline (11,242) (4,587) (695)Power Trendline 11,951 17,109 21,104 Exponential Trendline 13,061 16,007 19,618 Polynomial Trendline 11,997 16,902 21,121 Actual Revenues 12,076 16,719 21,196

Variance Analysis of Past Budgets:

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

(20,000)

0

20,000

40,000

60,000

80,000

100,000

Non Linear Trends

Logarithmic Trend-linePower TrendlineExponential Trend-linePolynomial Trend-lineActual Revenues

Periods

To

tal R

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ues

Accuracy in the budget process should be examined to determine the degree of error orvariance in the budget process. If the variance is high, this indicates a need to improveplanning techniques within the company. TBD: To be Determined

1996 1997 1998Income Statement ItemsTotal Revenues - Budgeted 10,500 14,500 22,500 Total Revenues - Actual 12,076 16,719 21,196 % difference from actual -13% -13% 6%

Cost of Goods Sold - Budgeted (4,500) (6,500) (8,648)Cost of Goods Sold - Actual (4,950) (7,050) (8,233)% difference from actual -9% -8% 5%

Operating Income - Budgeted 3,100 4,900 9,000 Operating Income - Actual 3,815 5,776 8,309 % difference from actual -19% -15% 8%

Net Income - Budgeted 2,100 4,100 6,500 Net Income - Actual 2,925 4,968 6,240 % difference from actual -28% -17% 4%

Balance Sheet ItemsCurrent Assets - Budgeted 3,450 4,400 6,250 Current Assets - Actual 3,895 5,025 5,763 % difference from actual -11% -12% 8%

NonCurrent Assets - Budgeted 10,900 14,000 22,000 NonCurrent Assets - Actual 13,251 16,335 19,951 % difference from actual -18% -14% 10%

Current Liabilities - Budgeted 3,750 5,600 8,200 Current Liabilities - Actual 4,312 6,245 7,375 % difference from actual -13% -10% 11%

NonCurrent Liabilities - Budgeted 1,750 2,450 3,750 NonCurrent Liabilities - Actual 1,810 2,500 3,301 % difference from actual -3% -2% 14%

Ratio ItemsCurrent Ratio - Budgeted 0.92 0.79 0.76 Current Ratio - Actual 0.90 0.80 0.78 % difference from actual 2% -2% -2%

Total Asset Turnover - Budgeted 0.68 0.72 0.80Total Asset Turnover - Actual 0.70 0.78 0.82% difference from actual -3% -8% -3%

Gross Profit Margin - Budgeted 60% 60% 60%Gross Profit Margin - Actual 59% 58% 61%% difference from actual 2% 4% -2%

Net Profit Margin - Budgeted 19% 25% 28%Net Profit Margin - Actual 24% 30% 29%% difference from actual -22% -16% -5%

Debt to Common Equity - Budgeted 0.45 0.50 0.60 Debt to Common Equity - Actual 0.50 0.63 0.63 % difference from actual -11% -20% -4%

Return on Equity - Budgeted 20% 29% 32%Return on Equity - Actual 24% 33% 35%% difference from actual -16% -13% -9%

We can use specific measurements to track and control forecasting errors:

Mean Absolute Error - An absolute value of forecast errors, does not place weight on theamount of the error. Calculated as the sum of (actual values - predicted values) / n.

Mean Square Error - Similar to Mean Absolute Error, but does place more emphasis on the amount of error; i.e. an error of 8 is twice as significant as 4. Calculated as the sum of (actual values - predicted values)^2 / n.

Root Mean Square Error - To make the Mean Square Error useful and comparable to the MeanAbsolute Error, we can take the square root of the Mean Square Error. We can then use this as a guide to establish an error limit or standard for flagging unacceptable errors.

Actual ForecastedExample: Total Revenues Period Revenues Revenuesn: total number of periods 1996 12,076 10,500

1997 16,719 14,500 1998 21,196 22,500 1999 24,737 28,500 2000 27,448 30,000

n => 5 Sum =>

Mean Absolute ErrorMean Square ErrorRoot Mean Sqr ErrorEstablish Error Limits

F242

Setting a reasonable limit requires a review of past history and other factors. However, we can begin by looking at the Root Mean Square Error as a starting point.

Once we complete our forecast, we can summarize and review it before finalizing itinto the form of budgets. We also need to summarize our assumptions that shouldgo into our final budget. We can start our budget process by reviewing the different


43,190 48,37343,692 47,569 26,355 26,340 33,170 31,000 24,737 27,448

33,170 31,000

In addition to using linear models for forecasting, we can apply several non-linear (curve) models:Logarithmic - Used when rate of change in data suddenly shifts upward or downward.

2001 2002 2003 2004 20050

10,000

20,000

30,000

40,000

50,000

60,000

Forecast Comparisons

Simple Projection ModelLinear Trend ModelWt Moving Avg ModelDeclining Growth ModelHistorical Data

Periods

To

tal R

ev

en

ue

s

Exponential - Used when rate of change is increasing or decreasing at ever higher rates.

Slope Intercept c factor b factor

9600.91841 11242.3365

Slope Interceptc factor b factor

0.51758981 9.3885982311951.3346

< - calculate using c and b factor - >Slope Intercept Predicted

c factor b factor ( c * x) EXP Value y0.20339009 9.27401935 0.20339 1.2255504 13,061

10657.5022 0.40678 1.5019739 16,007 0.61017 1.8407448 19,618 0.81356 2.2559256 24,043 1.01695 2.7647506 29,465

1.22034 3.3883414 36,111 1.42373 4.1525833 44,256 1.62712 5.0892003 54,238 1.83051 6.2370717 66,472 2.03390 7.6438461 81,464

c2 c1 b -342.85714 5933.34286 6406.6

G100

Entering the polynomial formula is not easy. We need to enter the formula as an array, go back and edit the formula to add the range of powers, and then post again as an array. Here are the steps: Since we are using 2 powers, we will have two c values and one b value; thus we have an array of three cells (G101:I101). Highlight all three cells, select the function LINEST, select known y values (E101:E105) and known x values (D101:D105). Do NOT click and paste the values => Hit Shift / Control / Enter on your keypad at the same time to paste an array. This gives us the slope and intercept without any powers. Next, highlight the three output cells again (G101:I101), edit the formula by adding the powers in brackets; i.e. ^{1,2} to the existing formula. Once again, hit Shift / Control / Enter to paste the array values.

1999 2000 2001 2002 2003 2004 20052,067 4,210 5,960 7,440 8,722 9,853 10,865

24,493 27,491 30,212 32,721 35,063 37,267 39,356 24,043 29,465 36,111 44,256 54,238 66,472 81,464 24,654 27,502 29,664 31,140 31,930 32,035 31,454 24,737 27,448

1996

1997

1998

1999

2000

2001

2002

2003

2004

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(20,000)

0

20,000

40,000

60,000

80,000

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Non Linear Trends

Logarithmic Trend-linePower TrendlineExponential Trend-linePolynomial Trend-lineActual Revenues

Periods

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tal R

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ues

Accuracy in the budget process should be examined to determine the degree of error orvariance in the budget process. If the variance is high, this indicates a need to improve

(Wksht 16)1999 2000 2001

28,500 30,000 30,500 24,737 27,448 TBD

15% 9% #VALUE!

(9,650) (11,000) (11,929)(9,050) (10,150) TBD

7% 8% #VALUE!

11,000 10,500 11,146 9,995 10,150 TBD

10% 3% #VALUE!

9,000 9,300 7,986 7,911 7,701 TBD

14% 21% #VALUE!

7,500 7,900 8,253 6,804 7,511 TBD

10% 5% #VALUE!

27,500 29,500 31,555 25,375 26,602 TBD

8% 11% #VALUE!

9,050 9,400 10,715 8,590 9,687 TBD

5% -3% #VALUE!

4,900 5,100 5,250 4,490 4,945 TBD

9% 3% #VALUE!

0.83 0.80 0.77 0.79 0.78 TBD

5% 3% #VALUE!

0.80 0.79 0.77 0.77 0.80 TBD4% -2% #VALUE!

60% 60% 0.61 63% 63% TBD-5% -5% #VALUE!

30% 28% 26%32% 28% TBD-6% 0% #VALUE!

0.65 0.55 0.48 0.57 0.53 TBD13% 4% #VALUE!

35% 30% 24%33% 26% TBD

5% 16% #VALUE!

Mean Absolute Error - An absolute value of forecast errors, does not place weight on theamount of the error. Calculated as the sum of (actual values - predicted values) / n.

Mean Square Error - Similar to Mean Absolute Error, but does place more emphasis on the amount of error; i.e. an error of 8 is twice as significant as 4. Calculated as the

Root Mean Square Error - To make the Mean Square Error useful and comparable to the MeanAbsolute Error, we can take the square root of the Mean Square Error. We can then use this as a guide to establish an error limit or standard for flagging unacceptable errors. Is Error

Error OutsideError Absolute Squared Limit?

1,576 1,576 2,483,776 No2,219 2,219 4,923,961 Yes

(1,304) 1,304 1,700,416 No(3,763) 3,763 14,160,169 Yes(2,552) 2,552 6,512,704 Yes(3,824) 3,824 14,622,976 Yes

Mean Absolute Error 765 Mean Square Error 2,924,595 Root Mean Sqr Error 1,710Establish Error Limits 1,710

Final Budgets forX Y Z Corporation USA

Now that we have analyzed our historical data and placed it into a set offorecast, we can pull it all together with our assumptions for a final budget.Many of these assumptions should be included in our forecast for improvedaccuracy. However, we need to fine tune and finalize all assumptions

active so that we can produce a final finished budget for planning purposes.

BudgetPeriod

Ref 2001

Operating Plan

16-1 Total Revenues 30,500 16-2 Cost of Goods Sold (11,929)16-3 Operating Expenses (7,424)16-4 Operating Income 11,146

16-5 Interest Expenses (310)16-6 Income Taxes (3,300)16-7 Other Non Operating Expenses (200)

16-8 Earnings Before Extra Ord Items 7,336 16-9 Extra Ordinary Items 650

16-10 Net Income 7,986

Financial Plan

Budgeted Cash Flows

16-11 Net Income 7,986 16-12 Depreciation and Amortization 470 16-13 (Increase) Decrease Defer Taxes 0 16-14 (Gain) Loss on Sale of Assets 15 16-15 (Increase) Decrease Current Assets (724)16-16 (Increase) Decrease Current Liab 988

16-17 Operating Cash Flow 8,735

Investment Sources of Cash:16-18 Planned Sale of Assets 100 16-19 Planned Sale of Investments 2,200 16-20 Other Investment Sources to be used 0 16-21 Total Investment Sources of Cash 2,300

Planned Investments:16-22 Capital Expenditures (4,500)

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Income Statement

A3

Cash Flow Statement

B3

Key Financials

A4

Ratio Analysis

B4

Benchmark Analysis

A5

Horizontal Analysis

B5

Vertical Analysis

A6


B6


A7


B7

Scenario Analysis

A8

Budget Analysis

B8

Final Budgets

16-23 Acquisitions in Other Co's (350)16-24 Purchases of Investments (2,500)16-25 Total Investment Applications of Cash (7,350)

Cash Flow from Financing Activities16-26 Proceeds from Loans & Debt 1,450 16-27 Proceeds from Minority Interest 15 16-28 Other Financing Activities 0 16-29 Total Financing Sources of Cash 1,465

Cash Flow Applied for Financing:16-30 Payments on Loans and Debt (1,250)16-31 Dividends Paid to Shareholders (2,500)16-32 Purchase / Retire Stock (1,500)16-33 Other Financing Activities 0 16-34 Total Financing Applications of Cash (5,250)

16-35 Total Change to Cash (100)

16-36 Beginning Cash Balance 870 16-37 Forecasted Ending Balance 770

Budgeted Balance Sheet

16-38 Cash and Cash Equivalents 770 16-39 Short Term Marketable Securities 10 16-40 Accounts Receivable 3,050 16-41 Inventory 2,440 16-42 Other Current Assets 1,983 16-43 Total Current Assets 8,253

16-44 Fixed Assets 32,600 16-45 Accumulated Depreciation (3,480)16-46 Net Fixed Assets 29,120 16-47 Longterm Investments 1,205 16-48 Investments in Other Companies 1,000 16-49 Intangibles and Other Assets 230 16-50 Total Non Current Assets 31,555

16-51 Total Assets 39,808

16-52 Accounts Payable 5,185 16-53 Short Term Borrowings 3,660 16-54 Short Term Portion of LT Debt 40 16-55 Other Current Liabilities 1,830 16-56 Total Current Liabilities 10,715

16-57 Longterm Debt / Borrowings 4,150 16-58 Other Longterm Liabilities 1,100 16-59 Total Non Current Liabilities 5,250

16-60 Total Liabilities 15,965

16-61 Preferred Stock 0 16-62 Common Equity 2,200 16-63 Additional Paid in Capital 5,700 16-64 Retained Earnings 25,491 16-65 Adj for Foreign Currency Translation (5,000)16-66 Treasury Stock (3,050)16-67 Total Equity 25,341

16-68 Total Liabilities and Equity 41,306

16-69 External Financing Required (1,499)

Now that we have analyzed our historical data and placed it into a set offorecast, we can pull it all together with our assumptions for a final budget.Many of these assumptions should be included in our forecast for improvedaccuracy. However, we need to fine tune and finalize all assumptions so that we can produce a final finished budget for planning purposes.

Assumptions & Comments

Based on review of Pro Forma Financials, Marketing, etc.Volume projections, production budgets, and vertical analysisAverage % of Sales per Vertical Analysis

Based on anticipated levels of debt and past historyBased on anticipated taxable income and effective rateProvision for contingency was added on this line item

Per our Simple Model Forecast

Review of Simple Model Forecast and Capital Expenditure Budget

Per Simple Forecast ModelSame formula as used in forecast modelsSame formula as used in forecast models

Per Simple Model ForecastPer Simple Model Forecast

Budgeted $ 4.5 million in Capital Expenditure Budget

Per forecast, strategic plan, and other budgetsPer forecast, strategic plan, and other budgets

Per Financing Requirements and other budgetsPer historical financials and investment budget

Per forecast and other budgetsPer Simple Model ForecastPer strategic plan and other budgets

Per abovePer historical financialsSame formula as used in forecast modelsSame formula as used in forecast modelsSame formula as used in forecast models

Same formula as used in forecast modelsSame formula as used in forecast models

Same formula as used in forecast modelsPer review of forecast and strategic plansPer review of forecast and historical balances

Same formula as used in forecast modelsSame formula as used in forecast modelsPer review of forecast and historical informationSame formula as used in forecast models

Same formula as used in forecast modelsPer review of historical information and expected growth rates.

Per Simple Model ForecastPer Simple Model ForecastSame formula as used in forecast modelsPer Simple Model ForecastSame formula as used in forecast models

Microsoft Excel 9.0 Answer ReportWorksheet: [Detail_Analysis.xls]13 - Pro Forma (Exp)Report Created: 3/16/2002 3:42:28 PM

Target Cell (Min)Cell Name Original Value Final Value

$G$60 Mean Squared Error Square 20,525,549 12,297,836

Adjustable CellsCell Name Original Value Final Value

$D$24 Set Smoothing Factor 0.70 1.00

ConstraintsCell Name Cell Value Formula Status Slack

$D$23 Smoothing Factor must be between 0 and 1 0 $D$23>=$D$23 Binding 0 $D$24 Set Smoothing Factor 1.00 $D$24<=$E$23 Binding 0

Microsoft Excel 9.0 Answer ReportWorksheet: [Detail_Analysis.xls]13 - Pro Forma (Exp)Report Created: 3/16/2002 5:19:05 PM

Target Cell (Min)Cell Name Original Value

$G$46 Mean Squared Error Square 65,536,151

Adjustable CellsCell Name Original Value

$D$25 Assign weights to appropriate periods 0.00%$E$25 Assign weights to appropriate periods 2.00%$F$25 Assign weights to appropriate periods Total weights should add up to => 5.00%$G$25 Assign weights to appropriate periods 35.00%$H$25 Assign weights to appropriate periods 60.00%

ConstraintsCell Name Cell Value

$I$25 Assign weights to appropriate periods 100.00%$D$25 Assign weights to appropriate periods 0.00%$E$25 Assign weights to appropriate periods 1.50%$F$25 Assign weights to appropriate periods Total weights should add up to => 4.50%$G$25 Assign weights to appropriate periods 34.50%$H$25 Assign weights to appropriate periods 59.50%$D$25 Assign weights to appropriate periods 0.00%$E$25 Assign weights to appropriate periods 1.50%$F$25 Assign weights to appropriate periods Total weights should add up to => 4.50%$G$25 Assign weights to appropriate periods 34.50%$H$25 Assign weights to appropriate periods 59.50%

Final Value59,853,342

Final Value0.00%1.50%4.50%

34.50%59.50%

Formula Status Slack$I$25=$E$23 Binding 0$D$25<=$E$23 Not Binding 1$E$25<=$E$23 Not Binding 0.985$F$25<=$E$23 Not Binding 0.955$G$25<=$E$23 Not Binding 0.655$H$25<=$E$23 Not Binding 0.405$D$25>=$D$23 Binding 0.00%$E$25>=$D$23 Not Binding 1.50%$F$25>=$D$23 Not Binding 4.50%$G$25>=$D$23 Not Binding 34.50%$H$25>=$D$23 Not Binding 59.50%

analysis on xyz

Documents

pro forma financials

cash flow statement

key financial data

financial analysis

industry averages

income statement

historical information

balance sheet