chap010Prospective Analysis(财务报表分析,台湾中兴大学)

Assessment of Solvency - prospective analysis
is useful to creditors to assess a company’s ability to meet debt service requirements, both short-term and long-term.
The Projection Process
Projected Income Statement
Target Corporation Projected Income Statement Forcasting Step 2002 Estimate 1 $ 43,115 2 29,450 2 13,665 4 9,602 5 1,263 6 578 7 2,222 8 844 9 10 $ 1,378 905 8.09% 31.69 22.27 6.85 7.15 38.00
Net sales Cost of goods sold Gross profit Selling, general and administrative expense Depreciation and amortization expense Interest expense Income before tax Income tax expense Extraordinary items and discontinued operations Net income Outstanding shares Forcasting Assumptions Sales growth Gross profit margin Selling, general and administrative expenses/Sales Depreciation expense/Gross prior year PP&E Interest espense/Prior-year long-term debt Income tax expense/Pretax income
The Projection Process
Projected Balance Sheet
Steps: 1) Project current assets other than cash, using projected sales or cost of goods sold and appropriate turnover ratios as described below. 2) Project PP&E increases with capital expenditures estimate derived from historical trends or information obtained in the MD&A section of the annual report. 3) Project current liabilities other than debt, using projected sales or cost of goods sold and appropriate turnover ratios as described below 4) Obtain current maturities of long-term debt from the long-term debt footnote. 5) Assume other short-term indebtedness is unchanged from prior year balance unless they have exhibited noticeable trends. 6) Assume initial long-term debt balance is equal to the prior period long-term debt less current maturities from 4) above. 7) Assume other long-term obligations are equal to the prior year’s balance unless they have exhibited noticeable trends. 8) Assume initial estimate of common stock is equal to the prior year’s balance 9) Assume retained earnings are equal to the prior year’s balance plus (minus) net profit (loss) and less expected dividends. 10) Assume other equity accounts are equal to the prior year’s balance unless they have exhibited noticeable trends.
The Projection Process
Projected Income Statement
Sales forecasts are a function of: 1) Historical trends 2) Expected level of macroeconomic activity 3) The competitive landscape 4) Strategic initiatives of management
The Projection Process
Target Corporation Projected Income Statement
1) 2) 3) 4) 5) 6) 7) 8) 9) Sales: $43,115 = $39,888 X 1.0809 Gross profit: $13,665 = $43,115 X 31.69% Cost of goods sold: $29,450 = $43,115-$13,665 SG&A: $9,602 = $43,115 X 22.27% Depreciation: $1,263 = $18,442(beginning-of-period PP&E gross) X 6.85% Interest: $578 = $8,088 (beginning-of-period interestbearing debt) X 7.15% Pretax income: $2,222 = $13,665-$9,602-$1,263-$578 Extraordinary and discontinued items: none Net income: $1,378 = $2,222 - $844
income models require estimates of future financial statements.
Management Assessment - forecasts of
financial performance examine the viability of companies’ strategic plans.
Receivables: $4,141 = $43,115 (Sales)/10.41 (Receivable turnover). Inventories: $4,809 = $29,450 (Cost of goods sold)/6.12 (Inventory turnover) Other current assets: no change. PP&E: $21,861 = $18,442 (Prior year’s balance) + $3,419 (Capital expenditure estimate). Accumulated depreciation: $6,172 = $4,909 (Prior balance) + $1,263 (Depreciation estimate). Net PP&E: $21,861 - $6,172. Other long-term assets: no change. Accounts payable: $29,450 (Cost of goods sold)/6.55 (Payable turnover). Current portion of long-term debt: amount reported in long-term debt footnote as the current maturity for 2002. Accrued expenses: $43,115 (Sales)/25.47 (Accrued expense turnover). Taxes payable: $844 (Tax expense) X 50.24% (Tax payable/Tax expense). Deferred income taxes and other liabilities : no change. Long-term debt: $8,088 (Prior year’s long-term debt) – $892 (Scheduled current maturities from 9). Common stock: no change. Capital surplus: $1,118 = $1,098 + $20 (reflecting normal ESOP and stock option activity). Retained earnings: $7,861 = $6,687 (Prior year’s retained earnings) + $1,378 (Projected net income) - $204 (Estimated dividends of $0.225 per share). Cash: amount needed to balance total liabilities and equity less (1) – (7).
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The Projection Process
Projected Income Statement Steps:
1) Project sales 2) Project cost of goods sold and gross profit margins using historical averages as a percent of sales 3) Project SG&A expenses using historical averages as a percent of sales 4) Project depreciation expense as an historical average percentage of beginning-of-year depreciable assets 5) Project interest expense as a percent of beginning-ofyear interest-bearing debt using existing rates if fixed and projected rates if variable 6) Project tax expense as an average of historical tax expense to pre-tax income
The Projection Process
Projected Balance Sheet
Projection of Target Corp’s 2002 Balance Sheet:
1) 2) 3) 4) 5) 6) 7) 8) 9)
10) 11) 12) 13) 14) 15) 16) 17)
Prospective Analysis
CHAPTER
10
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
Prospective Analysis
Importance Security Valuation - free cash flow and residual