Lecture_1___Financial_Forecasting_CoC_MFIN

Lecture_1___Financial_Forecasting_CoC_MFIN - Corporate...

Info iconThis preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon
Corporate Financial Policy Notes on Financial Forecasting Salvatore Cantale 1 Financial Forecasting Salvatore Cantale Financial Forecasting Why? ¾ Valuation – Pro Forma are Used to Derive Cash Flows ¾ Understand the Value Drivers ¾ Determine Optimal Strategic Decisions ¾ Financial Planning 9 Tax Planning 2 9 Anticipate Financing Needs or Dispose Excessive Cash ¾ Credit Worthiness of a Potential Borrower
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Corporate Financial Policy Notes on Financial Forecasting Salvatore Cantale 2 Financial Forecasting Percentage of Sales Forecasts Description : Pro Forma financial statements built around an estimate of the expected sales level for that period. The basis for this estimate may vary from rule-of-thumb to professional economic estimates, market research, and detailed analysis of the competitive situation. Driving Idea : 3 We implicitly assume that the various items in the balance sheet and income statement d epend directly on the sale level of the firm. Financial Forecasting Percentage of Sales Forecasts II Which items vary with sales? COGS: YES Fixed Assets, Net Fixed Assets Maybe Land No This approach requires a good deal of sensitivity and knowledge of the firm on the part of the modeler! 4 See Model 1: The Basic Model (Exhibit 1.1 and 1.2) See Model 2: Introducing Depreciation (Exhibit 1.3) See Model 3: Conditional Statements (Exhibit 1.4)
Background image of page 2
Corporate Financial Policy Notes on Financial Forecasting Salvatore Cantale 3 Financial Forecasting The Free Cash Flows Once Pro Forma are created, we can derive the cash flows that ill b l t f th l ti will be relevant for the valuation process I restrict my attention to the Free Cash Flows Free Cash Flows: cash flows available to all security holder 5 Free Cash Flows: cash flows available to all security holders Financial Forecasting The Free Cash Flows Method 1 Method 2 EBIT (1 Tax Rate) + Net Income + EBIT (1 – Tax Rate) + Depreciation – Interest (1 – Tax Rate) + CAPEX – Depreciation – Delta in NWC CAPEX – Free Cash Flows Delta in NWC Free Cash Flows 6 See the Attachment to Exhibit 1.4, where I calculated the FCFs for Model 3
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Corporate Financial Policy Notes on Financial Forecasting Salvatore Cantale 4 Financial Forecasting What else? You are now ready for the following steps: ± Sensitivity Analysis: “what-if” questions ± Scenario Analysis Build a “complete” scenario: 9 C titi E i 7 Competitive Environment 9 Pricing 9 Marketing & Production 9 Finance Financial Forecasting Summing up… Why do we want to do all this work? Consistency! o External financing o Capital structure o Operational objectives 8 o and, more generally, corporate goals
Background image of page 4
Corporate Financial Policy To accompany “Financial Forecasting” Salvatore Cantale
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Salvatore Cantale – Financial Forecasting 2 Exhibit 1.1 Sales growth 7% Initial sales 1,000 FA_Sales 70% CA_Sales 15% CL_Sales COGS_Sales Interest 10% Dividend Payout 60% Tax rate 53% Year 012345 Income Statement Sales 1,070 1,145 1,225 1,311 1,403 COGS 749 801 858 918 982 Gross Profit 321 343 368 393 421 Interest 28 27 Taxable Income 293 316 340 366 Taxes 155 167 180 194 209 Net Income 138 148 160 172 185
Background image of page 6
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/07/2008 for the course FINC 101 taught by Professor Salvo during the Summer '08 term at Tulane.

Page1 / 23

Lecture_1___Financial_Forecasting_CoC_MFIN - Corporate...

This preview shows document pages 1 - 7. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online