5 - Historical Operating Assumptions


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Unformatted text preview: it assumption Constant economies of scale Rapid growth is often accompanied by diseconomies of scale Do the historical numbers make sense? Are the growth rates sustainable? Is the past indicative of the future? Cost of Goods Sold Cost of Goods Sold We are interested in COGS as a percentage of sales Some firms include depreciation in COGS You will want to break depreciation out from COGS, so that you can vary the depreciation method. Cash Gross Profit Cash Gross Profit Cash Gross Profit = Sales – cash COGS Ignores depreciation Cash Gross Margin Cash Gross Margin Margin means that the item is divided by sales Cash Gross Margin is a key driver for commodity industries When the firm is a price taker, the low cost producer will enjoy a competitive advantage SGAE SGAE Selling, General, and Administrative Expenses We want this as a percentage of Sales Some firms include amortization in SGAE Break out the Amortization charge, so that we can vary the amortization schedule Now you are ready for EBITDA Now you are ready...
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This document was uploaded on 11/02/2011 for the course FINANCE 390 at Rutgers.

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