financial statement & credit risk analysis & early warning ... · © barry m frohlinger...

© Barry M Frohlinger 1981 - 2012

Financial Statement & Credit Risk Analysis & Early Warning Signs

© Barry M Frohlinger, Inc. copyright 1981 – 2017 These materials are the property of Barry M Frohlinger, Inc. If you are not enrolled in the Barry M Frohlinger program, it is illegal to possess these materials. 1

•You purchased an apartment on September 22, 2006 and paid Euro 550,000.

•The apartment is identical to your neighbors who sold their apartment today for Euro 600,000.

•What is the value of your apartment?

•______________Value

•______________Value


•Book Value and Net Book Value

•Fair Market Value and Net Realizable Value

•Liquidation Value

•Enterprise Value

•Loanable Value

•Equity Value

© Barry M Frohlinger, Inc. copyright 1981 – 2017 These materials are the property of Barry M Frohlinger, Inc. If you are not enrolled in the Barry M Frohlinger program, it is illegal to possess these materials.

Similar/Identical/Relative Value

Similar Identical

3


Value

• Several types and definitions of value sought by analysts. Some of the most common are:• Book Value and Net Book

– Book Value is the historic cost and – Net Book Value is the Book Value net of all expenses since the asset was put

into place» P,P,E [net] is a common example

• Fair Market value – The estimated amount for which an asset or liability should exchange on the

valuation date» between a willing buyer and a willing seller » in an arm's length transaction, » after proper marketing with a reasonable time for exposure in the open

market, with sufficient buyers and sellers » where the parties had each acted knowledgeably and prudently.

• Net realizable value – the FMV net of transaction costs

• Liquidation value – May be analyzed as either a forced liquidation or an orderly liquidation. – It assumes a seller is compelled to sell

• Enterprise Value– Economic [fair]value of the firm’s net operating assets [firm value]

• Loanable Value– The amount a lender is willing to lend to a borrower

• Equity Value – The residual value, provided by the owner


Book and Net Book

Book Net Book FVAcc ReceivablesInventoryPPEIdentifiable [finite life] IntangibleNatural ResourcesDeferred Tax Assets

5


Intangibles

Expense? 1983?Identifiable

Finite lifeIndefinite life

UnidentifiableGoodwill

6


Your client would like to a new credit facility in the amount of $250 million. What are the appropriate steps?

?


Credit Process

8


Credit Process Overview [Profiles]

1. Deal Assessment2. Qualitative Risk Analysis & Historic Quantitative Analysis3. Forecasting/Sensitivity Analysis

a. Tool vs Modelb. Management, Bank, Stress?

4. Credit Decision/Debt [Capital] Structuring


C’s and P’s of Credit

• Character• Capacity • Capital• Collateral• Conditions

• Cause

• Cross Sell

• People• Payment

• Protection• Perspective

• Purpose• Profiles • Profit [ROIC]


Credit Process [Profiles] Overview

1. Deal Assessmenti. Characterii. Purpose and Cause and Lending Rationale

i. Cash Flow, Asset Conversion and Asset Protection Loans 2. Historic and Future Qualitative and Quantitative Analysis

i. Conditions [Economic, Industry, Business and Management Profiles]ii. Capacity and Capital

i. Earnings and Balance Sheet Profileii. Cash Flow and Liquidity Profileiii. Capital Structure Profile

iii. Cause 3. Forecasting and Sensitivity4. Credit Decision/Debt [Capital]Structuring

i. Legal Entity Profileii. Collateraliii. Covenantsiv. Deal Profitability


The Balance Sheet, what is it?[Accounting]

Balance Sheet

Current Assets

Non Current Assets

Current Liabilities

Equity

NCL



Balance Sheet

Cash

Non Current Operating

[Non Operating]Assets

ST Debt

Equity

Working LiabilitiesWorking AssetsLT Op Liabilities

LT Debt



Balance Sheet

Cash

Monetary Assets

Payables

Equity

Debt

Non Monetary Assets [4]


The Balance Sheet, what is it? [Accounting? Liquidity?]

Balance Sheet

Current Assets 100

Non Current Assets

350

Current Liabilities70


The Balance Sheet, what is it? [Valuation]

Balance Sheet

Cash/Securities

5 Operating Assets

Supplier Financing

All Equity

All Debt



Balance Sheet

Cash 100

5 Operating Assets 900

Supplier Financing 200

All Equity 500

All Debt 300


The Balance Sheet, what is it?

Balance Sheet

Cash

5 Operating Assets

Supplier Financing

Equity

All Debt


The Balance Sheet, what is it?

Balance Sheet

Cash

5 Operating

Assets

Supplier Financing

Total Equity

Total Debt



Balance Sheet

Cash

Net Operating Assets Total Equity

Total Debt



Balance Sheet

Cash

Net Operating Assets

Total Capital


The Balance Sheet, what is it?[Valuation]

Balance Sheet

Net Operating Assets Invested Capital


Enterprise Value, What is it?

HP Balance Sheet December-13

Cash 12,163Operating Liabilities 55,433

All remaining assets 93,513 Debt 22,587Equity 27,656

Total assets 105,676 Total Financing 105,676


Enterprise Value, What is it? And how to calculate123

HP 2013 BV 2013 FV 2013 FVCash 12,163 12,163 12,163All remaining assets [Operating] 93,513

Total assets 105,676

Operating Liabilities 55,433Debt 22,587Equity 27,656Total Financing 105,676

HP 2013 BV 2013 FV 2013 FVCash 12,163 12,163 12,163Net Operating Assets 38,080

Total assets 50,243Debt 22,587 22,813$ Equity 27,656 44,366$ Total Financing 50,243


Enterprise Value, How much to lend?

HP 2013 FVCash 12,163Net Operating Assets at FV 55,016

Total assets 67,719Debt $22,813 Equity $44,366

Total Financing 67,179

Net DebtGross DebtEnterprise Value

Debt/EV


Debt/EV

26

Name EV equity net debt debt cash debt/EV net debt/EV Rating EBITDADebt/EBITDA EV/EBITDA

XOM 376000 352000 24000 29000 4,000 8% 6.40% AA+ 31,000 0.94 12.1 Home Depot 165000 150000 15000 17000 1,000 10% 9.10% A 13,600 1.25 12.1 Costco 63,000 63,000 0 7,000 7,000 11.1% 0.0% A- 4,800 1.46 13.1 Merck 165000 159000 6000 21000 15000 13% 3.60% AA- 14,400 1.46 11.5 United Technology 123000 117000 6000 20000 5000 16% 4.9% A 10,300 1.94 11.9 FedEx 54,000 47,000 7,000 9,000 2,000 16.7% 13.0% BBB 7,000 1.29 7.7 CISCO 110,000 143000 0 20,000 53,000 18% 0.00% AA- 14,200 1.41 7.7 Oracle 173,000 183,000 0 32,000 42000 18.5% 0.0% A 15,200 2.11 11.4 Target 61,000 50,000 11,000 13000 2000 21% 18.0% A 7,100 1.83 8.6 Kraft Heinz 112,000 93,000 21,000 25,000 4,000 22.3% 6.3% BBB - 4,300 5.81 26.0 Kroger 48000 37000 11000 12000 1000 25% 22.9% BBB 4,500 2.67 10.7 Amgen 120,000 117,000 3,000 30,000 27,000 25.0% 2.5% A 10,700 2.80 11.2 General Mills 41,000 31,000 10,000 11,000 1,000 26.8% 24.4% BBB 3,500 3.14 11.7 Flextronics 7100 6700 400 2100 1700 30% 5.60% BBB- 1,200 1.75 5.9 Royal Caribbean 25,000 17,000 8,000 8,000 1,000 32.0% 32.0% BB 2,100 3.81 11.9 DirectTV 59,000 43,000 16,000 20,000 4,000 33.9% 27.1% BBB 2,100 9.52 28.1 ATT 243000 167000 76000 83000 8000 34% 31.3% BBB+ 47,100 1.76 5.2 Becton Dickinson 28000 27000 1000 10000 9000 36% 3.6% A 2,900 3.45 9.7 International Paper 33,000 23,000 10,000 12,000 2,000 36.4% 30.3% BBB+ 3,700 3.24 8.9 Verizon 305000 203000 102000 113,000 11,000 37% 33.4% BBB+ 49,100 2.30 6.2 Southern Company 65,000 40,000 25,000 26,000 1,000 40.0% 38.5% A- 6,700 3.88 9.7 Eastman Chemical 18,000 10,000 8,000 9,000 1,000 50.0% 44.4% BBB 2,200 4.09 8.2 HCA 59,000 30,000 29,000 30,000 1,000 50.8% 49.2% BB 7,900 3.80 7.5 Clear Channel 8,000 3,000 5,000 5,000 0 62.5% 62.5% CCC+ 700 7.14 11.4 Sprint 49000 20000 29000 32,000 3,000 65.0% 59.2% B+ 7,900 4.05 6.2 MGM Resorts 21,000 9,000 12,000 14,000 2,000 66.7% 57.1% B + 1,900 7.37 11.1 NRG 27,000 7,000 20,000 22,000 2,000 81.5% 74.1% BB- 2,700 8.15 10.0


EV and Tax

• EV/EBITDA

• What happens to EBITDA when– Interest expense rises– Tax expense falls– Depreciation expense increases– Amortization expense disappears

• What happened to 2018 EBITDA with a change in Corporate Tax Rates?

• What happened to EV with a change in reduction in Corporate Tax Rates?

27


Seminar Overview

•This seminar builds upon the prerequisite understanding of financial statement reporting and analysis

– it will develop the ability to perform an analysis of a company's financial and non financial information that is useful for making credit decisions.


Credit and Risk Analytics

• What is it?• Financial analytics applies tools to financial statements to derive

inferences useful in making business decisions. • There are many classes of external users of financial statements.

– Creditors look for the ability of the borrower to pay interest and repay debt. – Shareholders need information to help in choosing among competing alternative

investments. • Credit Analytics is intended to determine the amount of risk in a single

name counterparty with the objective of determing whether to– Accept it or– Mitigate it or– Reject it

• Make sure you keep the proper mindset in analysis– Credit vs Equity Mindset


Common elements of all credit analysis [Profiles]The Outlier in these risk profiles is the weak link

1) Business Risk Profile [including Management]2) Earnings Profile [including Accounting risk profile]3) Asset Profile4) Liquidity Profile5) Cash Flow Profile6) Capital Structure Profile7) Debt Instrument Profile8) Debt Maturity Profile9) Financial Profile10) Legal Structure Profile11) Projections Profile


Company 11 Point Profiles Scorecard

31

Analysis KSF/Credit Implication Recommendation

Business Risk Profile Recommendation

Earnings Profile Recommendation

Asset Profile Recommendation

Liquidity Profile Recommendation

Cash Flow Profile

Capital Structure Profile Recommendation

Debt Instrument Profile Recommendation

Debt Maturity Profile Recommendation

Financial Profile

Legal Structure [borrowing entity] Profile

Recommendation

Cash Flow ProjectionsProfile


Avon Snapshot

32

Analysis KSF/Credit Implication

Recommendation

Business Risk Profile

Earnings Profile

Asset Profile

Liquidity Profile

Cash Flow Profile

Capital StructureProfile

Debt Instrument Profile

Debt Maturity Profile

Financial Profile

Legal Structure Profile

Cash Flow Projections Profile


Business Risk Profiles

q Revenue Volatilityq Technology, Commodities, Cyclical

q Life Cycle q Mature, Growth, Decline

q Cyclicality q Fixed Cost?

q Seasonalityq Competitors, including Barriers to Enter/Exit q Government Regulation q Dependence q Vulnerability to Substitutes or Disruptionsq Shifting Rivalryq Overall and General Risk Characteristics of the firm

q Scale, Franchise Strength, Geographic Footprintq Product Diversification, Market Shareq Currency, Commodities, Rates and Client Counterparty Credit Risk Management

q Supply Chain and Outbound logistics q Sales, Marketing and Competitionq Management

q Strategy Articulation and Executionq Effectiveness

q Track Record, Experience, Succession Planning, Depth & Breadth q Corporate Governance


Business Risk Profile

34

ExcellentStrongSatisfactoryFairWeakVulnerable

Risk Description Mitigant Impact Recommendation


Financial Risk Profile

35

Minimal

Modest

Intermediate

Significant

Aggressive

Highly Leveraged

Capital Structure Profile

Earnings Profile Minimal Debt Modest Debt Average Little Equity Financing

Strong Minimal Minimal Modest Intermediate

Satisfactory Minimal Modest Intermediate Significant

Fair Modest Intermediate Significant Aggressive

Weak Intermediate Significant Agressive Highly Leveraged


Key Credit Principles

• Every loan must have at least ____________ ways out

• Small borrowers are riskier than large one


Cs

• Character/Client– KYC– What is the industry, business and management risk profile?– What is the asset profile?– What is their cash flow profile?

• Can the cash flow be sustained? – What is the legal profile/structure?– Does the financing request make sense?

• Capacity– Adequacy of Cash Flow– Liquidity

• Capital– Does the firm have enough equity [based upon the risk profiles]?– Have you considered the Equity vs. Credit Mindset


Cs • Collateral

– considered a secondary or even tertiary source of repayment for a loan. What is the purpose of the intended loan?

• Conditions– What is the appetite of the bank at the current time?– What are the risks profiles of the

• economy, • industry, • business and • management

– and are these acceptable risks?– What is the legal structure of the borrower?– What covenants and other terms are used in order to control actions of the borrower?– Covenants are important part of lending

• What is a covenant

• What is the intended purpose of covenants


Default risk, The possibility that a borrower will defaultby failing to repay principal and interest in a timely mannerand the bank MAY suffer a loss.

Probabilityof

Default[borrower]

Losson

Default[structure]

DefaultRisk

=x

Exposure at

Defaultx Maturityx


Question

• Is Measuring Earnings [Profit] a Key Component of Credit Analytics?


Lending Rationale

• Lending Rationale is the analysis of the facility and not the company.

– There are three lending rationales:• Cash Flow Lending• Asset Protection • Asset Conversion Cycle


Lending Rationales

• Cash Flow lending finances a firm’s permanent long term needs.– Primary source of repayment is cash flow

• profitability over time– Term loan with amortization of principle

• Asset Protection Lending– Financing of a relatively permanent need of accounts receivable and inventory– On a going concern basis, these loans are evergreen

• pay back of the principal is not expected. • In a distress situation, the liquidation of the assets being financed is the source of repayment.

– Financing provided to FI counterparties is also Asset Protection, CDS, ABF

• Asset Conversion Cycle lending is short term self liquidating loans made to finance a seasonal build up of inventory and/or accounts receivables.

– Primary Source of Repayment • Successful completion of the Asset Conversion Cycle

– Sale of inventory and collection of accounts receivable– Trade and Ag, Retail


Lending Rationales

• Cash Flow Lending– C&I

• Asset Protection– Weak and/or Unsustainable Cash Flows – FI

• Financial Institution Analytics and Credit is different than C&I• Asset Conversion Cycle [Seasonal]


Broadcast Wholesalers

Broadcast Wholesalers imports sportswear carrying the emblems of professional hockey teams.

Hockey items are ordered by Broadcast Wholesalers in March, imported in May, shipped to customers in July, and collections of receivables are completed by November. The company's terms of sale are net 30 days. The Company approaches the Bank each January, to request financing, with repayment completed by November.

1. What do these loans finance?_______________________________________________________________________

2. What is the lending rationale for these types of loans?_______________________________________________________________________


Low High Low

Cash

Acc Rec

Inventory

Tangible Fixed

ST Debt

Acc Pay

LT Debt

Equity


What is Operating Working Capital and Working Capital?


A typical balance sheet: assets

2017 ASSETS

Cash $204 Accounts Receivable - Trade 16,931 Inventory 1,984 TOTAL CURRENT ASSETS 19,119 Gross Fixed Assets 4,129 less: Accumulated Depreciation (1,200) Net Fixed Assets 2,929 Other Assets 764 Intangibles 45,431 less: Accumulated Amortization (0) Net Intangible Assets 45,431 TOTAL ASSETS $68,243

Liquid assets

Net property plant & equipment [operating]

Goodwill & Identifiable Intangibles [operating]

Trading assets [operating]


A typical balance sheet: Financing [liabilities and net worth]

Equity capital

2017 LIABILITIES

Notes Payable $0 Current Maturity Long-Term Debt 7,600 Accounts Payable - Trade 7,130 Accrued Liabilities 563 TOTAL CURRENT LIABILITIES 15,293 Long Term Debt 12,400 Subordinated Debt 8,400 TOTAL LIABILITIES $36,039

NET WORTH Common Stock $1,000 Paid In Capital 12,541 Retained Earnings 18,609 NET WORTH $32,150

TOTAL LIABILITIES & NET WORTH $68,243

Subordinated debt

Senior debt

Working Liabilities [operating]


Low High Low

Cash 100

AR + Inventory 600

PPE 500 500 500

ST Debt 0

Acc Pay 150

LTD + Equity 1,050

W/C requirement

Working Capital 550


Low High Low

Cash 1,100

AR + Inventory 600

PPE 500 500 500

ST Debt 0

Acc Pay 150

LTD + Equity 2,050

W/C requirement

Working Capital 1,550

More on Seasonality


Reasons for loans [Cause]

• Borrowing Cause means ___________

• Borrowing Purpose means _________

• Risk is, Sources of Repayment, and Loan Structure must be tied to cause and purpose


Courier Theater

Courier Theater is an operator of motion picture theaters, operating 100 movie theater sites with a total of 650 screens.Courier owns all the improvements to the sites; all the seating, the projection equipment, the escalators and elevators and all concession stand equipment. Courier has been in business for 47 years. The firm plans continued expansion in the coming years. Because of this expansion, the Company has approached the Bank for financing.

1. What is the cause for the borrowings?_______________________________________________________________________

2. What is the purpose of the debt?_______________________________________________________________________

3. What is the lending rationale?_______________________________________________________________________


Reasons for loans [Cause]

• Borrowing Causes include:– Sales growth [expansion]– Cash flow timing differences

• Permanent• Seasonal

– Profitability problems– Slowdown in AR or inventory turns [increased cash flow timing differences]– Industry changes


Developing an Appropriate Capital Structure

• Make sure that the capital [debt] structure is consistent with the lending rationale

• Cause• Purpose• Rationale


Security

ABL Cash Flow

Revolver: AR and InventoryTerm Loan: Property and Equipment

IG: Unsecured

Non IG: Lien on most assets

55


Reasons for loans [Purpose]

• Borrowing Purposes include:– Dividends/Share Repurchase

– Acquisition/investments

– Bridge Financing– Finance AR and/or Inventory

• Seasonal and/or permanent

– Refinance debt or recapitalize

– Finance capital expenditures

– Refinance debt

• Maturing debt obligations

• Bonds with high coupons

• Loans with tight covenants

• Fully drawn credit facilities

• Callable bonds to extend maturities


Financial Analytics

• The comparison of financial statements is accomplished by – setting up financial statements side by side– using common size numbers [%]

• Level [current year] Vertical Analysis– and reviewing the changes from year to year

• Trend [YoY] Horizontal Analysis• There is a three step process used for financial analysis:

– Profitability [earnings]– Liquidity

• Balance Sheet Management• Cash Flow Analysis

– Solvency • Capital Structure


Level and Trend

2015 2016 2017 2018FB, goals 25 24 22 15BB, average .455 .454 .452 .448C, runs 45 46 47 52

58


Financial Analytics

• Earnings Profile• Understanding sustainable, operating [unleveraged] earnings

• Cash Flow and Liquidity Profiles• Asset Profile• Measures of Liquidity

– Static and Dynamic • Sustainable cash flows

– Short run and long run • Distinguishing earnings from cash flow• Risks in debt maturity

• Capital Structure and Debt Profiles• Ratings and the rating agencies• The amount of debt available to a firm• Off balance sheet financing and the role in credit risk

• Using absolute [intrinsic] analysis in addition to peer comparisons [relative]


Financial and Credit Analysis, Measurement of Earnings

• Do level first, the most recent year– You must prepare an adjusted income statement

• Make sure you understand the accounting– Revenue recognition, LIFO vs. FIFO, pensions, stock based compensation,

debt, fair value accounting, derivatives, currencies• Format & Adjusted• Ratios

• Analytics means ratios must be consistent• Level [Vertical] analysis entails

– relative analysis [peers is key] – Segments [granular]– absolute [intrinsic] analysis [benchmarks]

• After level, then do trend analysis– Make sure you distinguish between the credit and equity mindset– Trend needs to be an entire business cycle

• 50 bp, generally for materiality.


Microsoft [Income Statement]Consistency?

2014 CommonSize

2013 Common Size

2012 Common Size

Revenue $86,833 100.0% $77,849 100.0% $73,723 100.0%Operating expenses:

Cost of revenue 26,934 31.0% 20,249 26.0% 17,530 23.8%Research and development 11,381 13.1% 10,411 13.4% 9,811 13.3%Sales and marketing 15,811 18.2% 15,276 19.6% 13,857 18.8%General and administrative 4,821 5.6% 5,149 6.6% 4,569 6.2%Operating income 27,886 32.1% 26,764 34.4% 27,956 37.9%

Other Income 66 0.1% -288 -0.4% 5,689 7.7%Tax Expense 5,746 6.6% 5,189 6.7% 5,289 7.2%Net Income $22,074 25.4% 21863 28.1% $16,978 23.0%


Microsoft [Peers]

OPM 2014 2013 2012

Peers 32.4% 35.5% 37.1%

Microsoft 32.1% 34.4% 37.9%


Peers

• Operational Characteristics– Industry– Products & Distribution Channel– Markets & Customers– Seasonality– Cyclicality– Strategy

• Financial Characteristics– Size– Leverage– Growth and/or Margins – Dividend Policy

63


Profitability Metrics

• Key Profitability Metrics are:– Gross Profit Margin [Gross Profit/Revenue]– Operating Profit Margin [Operating Profit/Revenue]– EBITDA Margin [EBITDA/Revenue]– RROIC [NOPAT/Invested Capital]– Return on Equity [ROE] Net Income to Common Shareholders/Common Equity

– Revenue Growth [% growth, year over year [Y-o-Y]

64


Microsoft [BS]

2014 2010

Cash 100,306 44,511

Operating Assets 72,078 41,602

Total Assets 172,384 86,113

Suppliers 59,955 33,999

Debt Financing 22,645 5,939

Owners 89,784 46,175

Total Financing 172,384 86,113

Operating Profit 27,886 [NOPAT_________]

24,157 [NOPAT________]

RROOA [OP/Op Assets]

Net Operating Assets

RROIC [NOPAT/Net Op Assets]


Salary

$ USdollars 2017 2018 trend

IB $800,000 $808,000 1%

Average IB $900,000 $927,000 3%

SW $4,000 $4,200 5%

Average SW $3,400 $3,400 0%


Bank

Assets Financing

Loans 100,000 Free Deposits 45,000

Interest Bearing Deposits

45,000

Equity 10,000

Rate on Loan 3% Deposit Cost 4%

Gross Interest Revenue

3,000

Interest Cost 1,800

Net Interest Income


Verizon

Cash 3,563 Revenue 115,846Investment in Affiliates 3,401 Operating Profit 12,653Operating Assets 218,258 Interest Income 88Total Assets 225,222 Equity Earnings 324

Interest Expense -2,571Payables [operating] 78,262 Tax 1,029Debt 51,544 Non Controlling Interest -9,682Non Controlling Interest 56,580 Net Income to Common Equity 1,841

Common Equity 38,836Total Financing 225,222 RROOA

Return on CashReturn on Investment in AffiliatesReturn on Invested CapitalReturn on Common Equity


The Kraft Heinz CompanyConsolidated Statements of Income(in millions, except per share data)

(Unaudited)

For the Year EndedDecember 29, 2018 December 30, 2017

Net sales $ 26,259 $ 26,085 Cost of products sold 17,309 16,948

Gross profit 8,950 9,137 Selling, general and administrative expenses, excluding impairment losses 3,204 2,951 Goodwill impairment losses —Intangible asset impairment losses 49 Selling, general and administrative expenses 3,204 3,000

Operating income/(loss) 5,746 6,137

Interest expense 1,288 1,234 Other expense/(income), net (183) (627)

Income/(loss) before income taxes 4,641 5,530

Depreciation and amortization (excluding integration and restructuring expenses) 950 Integration and restructuring expenses 296 RROOA Deal costs 23 RROIC Unrealized losses/(gains) on commodity hedges 21 Impairment Losses IMPAIRMENT Losses/(gains) on sale of business 15 Equity Value? Equity award compensation expense (excluding integration and restructuring expenses) 33

Cash and cash equivalents $ 1,130 Total current assets 9,091

Property, plant and equipment, net 7,212 Goodwill 44,824 Intangible assets, net 59,449 Other non-current assets 1,338

TOTAL ASSETS $ 121,914

Total current liabilities 7,432 Long-term debt 30,873 Deferred income taxes 12,298 Accrued postemployment costs 306 Other non-current liabilities 812

TOTAL LIABILITIES 51,721 Redeemable noncontrolling interest 3

Total shareholders' equity 70,072 Noncontrolling interest 118

TOTAL EQUITY 70,190 TOTAL LIABILITIES AND EQUITY $ 121,914

shares 1,221

debt trades at 99.34stock price feb 20 2019 $48.18

food companies EV/EBITDA 11.9X


KHC

70

Op Profit 5,746 Integration and restructuring expenses 296 Deal costs 23 Unrealized losses/(gains) on commodity hedges 21 Losses/(gains) on sale of business 15 Adjusted OP 6,101 NOPAT 4,820

Op Assets $ 120,784 RROOA 5.05%

IC/Net Op Assets $ 99,936 RROIC 4.82%IC/Net Op Assets 99,936

EBITDA 7,084 multiple 11.9

EV $ 84,300

market value equity $ 58,828 MV debt $ 30,669 less cash $ (1,130)EV $ 88,367


On Jan 14, 2013, Michael Dell, teaming up with private equity firm Silver Lake and Microsoft, offered $13.65 a share to buy out the company. Dell had 1.7 billion shares outstanding, the stock traded at $10.50 on Jan 13, 2013 and by on Jan 14, the stock price increased to $13.60. The balance sheet is listed below, [GAAP] The Market Value of debt and equity was calculated using market data on January 13, 2013. Comment on the change in the EV of the firm from Jan 13 to Jan 14, 2013.

Assets: All amounts in million of dollarsBalance Sheet 12.31.2012

Market Value on Jan 13, 2013

Cash & cash equivalents 12,777Accounts receivable, net 6,629Short-term financing receivables, net 3,213Inventories, net 1,382Other 3,967Total current assets 27,968PP&E, net 2,126Investments 2,565Long-term financing receivable, net 1,349Goodwill 9,304Purchased intangible assets, net 3,374Other non-current assets 854Total assets: 47,540

Liabilities & Stockholders Equity:Short-term borrowings 3,843 3,843Accounts payable 11,579Accrued and other 3,644Short-term deferred revenue 4,373Total current liabilities 23,439Long-term debt 5,242 5,400Long-term deferred revenue 3,971Other non-current liabilities 4,187Total liabilities: 36,839Total Dell stockholder's equity 10,701 17,850

Total liabilities & Equity 47,540


Balance Sheet and IS• Key Questions:

– Do companies want large or small [on] balance sheet assets– Is profitability analysis important

• in Equity Analysis?• in Credit Analysis?

• Analytics, Relative and Trend:– Calculate the OPM for the firm and compare to peers, segments and trends

• Analytics, Absolute [intrinsic]:– Calculate the RROOA for the firm and compare to the pretax cost of debt and observe the amount of assets financed with debt

– RROIC [compared to the WACC and observe Enterprise Value compared to Book Value of IC]


Pepsi, Profits

73

2014 2014 CS

Revenue 66,683 100.0%

Cost of Sales 30,917 46.4%

SGA 25,453 38.0%

Operating Profit 10,313 15.5%


Pepsi, Comment on Profits, You need to know that the average OPM for food and beverage companies is 15.3%

74

2014 CSRevenue 66,683 100.0%Cost of Sales 30,917 46.4%SGA 25,453 38.0%Operating Profit 10,313 15.5%Op Assets 61,026RROOA 16.9%Net Op Assets 35,030RROIC 19.1%


ROIC

75

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

20.00%

2011 2012 2013 2014


Pepsi

76

RevenueOperating Profit

FLNA 14,502 4,102 QFNA 2,568 635 LA Foods 8,442 1,236 Pepsi NA Beverage 21,154 3,007 Europe 13,290 1,402 Asia 6,727 1,080

66,683 11,462

Corporate Expenses 1,149


Pepsi You need to know that the average OPM for food companies is 11.9% and beverage companies is 18.6%

77

Revenue CS Operating Profit CS

FLNA 14,502 22% 4,102 28.3%

QFNA 2,568 4% 635 24.7%

LA Foods 8,442 13% 1,236 14.6%

Pepsi NA Beverage 21,154 32% 3,007 14.2%

Europe 13,290 20% 1,402 10.5%

Asia 6,727 10% 1,080 16.1%

66,683 100% 11,462 17.2%

Corporate 1,149


Peers

0

5

10

15

20

25

30

Food Beverage Food & Beverage

FLNAQFNALA FoodsFood PeersPepsi NABeverage PeersEuropeAsiaFood & Bev Peers

78


Segment

FLNA, 14,502

QFNA, 2,568

LA Foods, 8,442

Pepsi NA Beverage,

21,154

Europe, 13,290

Asia, 6,727

79


OPM Pepsi

0%

5%

10%

15%

20%

25%

30%

FLNA QFNA LA Foods Pepsi NABeverage

Europe Asia

OPM

80


Pepsi

81

Revenue CS Operating Profit CS Assets OP/Assets

FLNA 14,502 22% 4,102 28.3% 5,307 77.3%

QFNA 2,568 4% 635 24.7% 982 64.7%

LA Foods 8,442 13% 1,236 14.6% 4,760 26.0%

Pepsi NA Beverage 21,154 32% 3,007 14.2% 30,188 10.0%

Europe 13,290 20% 1,402 10.5% 13,902 10.1%

Asia 6,727 10% 1,080 16.1% 5,887 18.3%

66,683 100% 11,462 17.2%

Corporate 1,149 9,483


Pepsi

0%10%20%30%40%50%60%70%80%90%


Europe Asia

ROA-Segment

82


Earnings Profile

83

0

10000

20000

30000

40000

50000

60000

70000

80000

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Revenue

0

2000

4000

6000

8000

10000

12000

14000

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

EBITDA


EBITDA margins [Earnings Profile]

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

84


Earnings Profile

85

0%

5%

10%

15%

20%

25%

30%


Europe Asia

OPM

FLNA, 14,502

QFNA, 2,568

LA Foods, 8,442

Pepsi NA Beverage,

21,154

Europe, 13,290

Asia, 6,727

0

5

10

15

20

25

30

Food Beverage Food &Beverage

FLNA

QFNA

LA Foods

Food Peers

Pepsi NA

Beverage Peers

Europe

Asia

0.00%

5.00%

10.00%

15.00%

20.00%

2011 2012 2013 2014

ROIC


Teva

• Teva Pharmaceutical Industries Ltd. is an Israeli multinational pharmaceutical company headquartered. It specializes primarily in generic drugs, but other business interests include active pharmaceutical ingredients and, to a lesser extent, proprietary pharmaceuticals. It is the largest generic drug manufacturer in the world and one of the 15 largest pharmaceutical companies worldwide.

• Abbott Laboratories is an American worldwide health care firm; it split off the research-based pharmaceuticals into Abbvie in 2013. In 2015, revenues were $20.4 billion.

• Abbott has a broad range of branded generic pharmaceuticals, medical devices, diagnostics, and nutrition products.• Allergan, Plc is a multi-national pharmaceutical that produces branded and generic drugs, and performs pharmaceutical research and

development. • Bristol-Myers Squibb is an American pharmaceutical company; manufactures prescription pharmaceuticals in several therapeutic

areas, including cancer, HIV/AIDS, cardiovascular disease, diabetes, hepatitis, rheumatoid arthritis and psychiatric disorders. • Eli Lilly and Company is an American global pharmaceutical company Lilly was the first company to mass-produce penicillin, the Salk

polio vaccine, and insulin. Its achievements include being one of the first pharmaceutical companies to produce human insulin using recombinant DNA including Humulin, Humalog, and the first approved biosimilar insulin product in the US Basaglar.

• Merck is an American pharmaceutical company and one of the largest pharmaceutical companies in the world. Merck's research and development effort has led to the approval of more new drugs than that of any other company.

• GlaxoSmithKline is a British pharmaceutical company. GSK was the world's sixth largest pharmaceutical company. GSK's drugs and vaccines earned £21.3 billion, with GSK consumer products earning £5.2 billion.

• Sanofi S.A. is a French multinational pharmaceutical company and the world's fifth-largest by prescription sales.[Sanofi engages in the research and development, manufacturing and marketing of pharmaceutical drugs principally in the prescription market, but the firm also develops over-the-counter medication.

• Mylan N.V. is an American global generic and specialty pharmaceuticals company registered in the Netherlands, with principal executive offices in the UK and global headquarters in Pennsylvania, US. Through acquisitions, Mylan grew from the third-largest generic and pharmaceuticals company in the United States to the second-largest generic and specialty pharmaceuticals company in the world.

86

https://en.wikipedia.org/wiki/Israeli

https://en.wikipedia.org/wiki/Multinational_corporation

https://en.wikipedia.org/wiki/Pharmaceutical_company

https://en.wikipedia.org/wiki/Generic_drug

https://en.wikipedia.org/wiki/Active_pharmaceutical_ingredient

https://en.wikipedia.org/wiki/Health_care

https://en.wikipedia.org/wiki/Abbvie

https://en.wikipedia.org/wiki/Pharmaceutical_company

https://en.wikipedia.org/wiki/Cancer

https://en.wikipedia.org/wiki/HIV/AIDS

https://en.wikipedia.org/wiki/Cardiovascular_disease

https://en.wikipedia.org/wiki/Diabetes

https://en.wikipedia.org/wiki/Hepatitis

https://en.wikipedia.org/wiki/Rheumatoid_arthritis

https://en.wikipedia.org/wiki/Psychiatric_disorders

https://en.wikipedia.org/wiki/Pharmaceutical

https://en.wikipedia.org/wiki/Penicillin

https://en.wikipedia.org/wiki/Jonas_Salk

https://en.wikipedia.org/wiki/Polio_vaccine

https://en.wikipedia.org/wiki/Insulin

https://en.wikipedia.org/wiki/Pharmaceutical

https://en.wikipedia.org/wiki/Insulin

https://en.wikipedia.org/wiki/Recombinant_DNA

https://en.wikipedia.org/wiki/Insulin_(medication)

https://en.wikipedia.org/wiki/Insulin_lispro

https://en.wikipedia.org/wiki/Insulin_glargine

https://en.wikipedia.org/wiki/Pharmaceutical_companies

https://en.wikipedia.org/wiki/Pharmaceutical_industry

https://en.wikipedia.org/wiki/Multinational_corporation

https://en.wikipedia.org/wiki/Pharmaceutical_industry

https://en.wikipedia.org/wiki/Prescription_drug

https://en.wikipedia.org/wiki/Research_and_development

https://en.wikipedia.org/wiki/Pharmaceutical_drugs

https://en.wikipedia.org/wiki/Over-the-counter_drug

https://en.wikipedia.org/wiki/Generic_drug

https://en.wikipedia.org/wiki/Pharmaceuticals

https://en.wikipedia.org/wiki/The_Netherlands

https://en.wikipedia.org/wiki/Canonsburg,_Pennsylvania

https://en.wikipedia.org/wiki/United_States


Teva Profits

87

Teva2015 adjusted IS Common Size

Revenue 19,652Cost of Good Sold 8296Gross Profit 11,356R&D 1,525Selling and Marketing 3,478General and Administrative 1,239Impairment 1,131Legal Settlements 631Operating Profit 3,352


Teva Comps [9]

88

Symbol: ABT ABBV AGN BMY LLY MRK GSK SNY MYL AveragePeriod Ending: 12/31/15 12/31/15 12/31/15 12/31/15 12/31/15 12/31/15 12/31/15 12/31/15 12/31/15Fiscal Year 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-DecTotal Revenue $20,405,000 $22,859,000 $15,071,000 $16,560,000 $19,958,700 $39,498,000 $35,260,000 $37,870,000 $9,429,300Cost of Revenue $8,747,000 $4,500,000 $4,810,400 $3,909,000 $5,037,200 $14,934,000 $13,048,000 $11,861,000 $5,213,200

Gross Profit $11,658,000 $18,359,000 $10,260,600 $12,651,000 $14,921,500 $24,564,000 $22,212,000 $26,008,000 $4,216,100Operating ExpensesResearch and Development $1,405,000 $4,285,000 $2,358,500 $5,920,000 $4,796,400 $6,704,000 $5,247,000 $5,521,000 $671,900Sales, General and Admin. $6,785,000 $6,387,000 $4,679,600 $4,841,000 $6,432,400 $10,313,000 $1,751,000 $10,361,000 $2,180,700

Operating Income $3,468,000 $7,687,000 $3,222,500 $1,890,000 $3,692,700 $7,547,000 $15,214,000 $10,126,000 $1,363,500

Gross Profit Margin 57.1% 80.3% 68.1% 76.4% 74.8% 62.2% 63.0% 68.7% 44.7% 66.1%R&D/Sales 6.9% 18.7% 15.6% 35.7% 24.0% 17.0% 14.9% 14.6% 7.1% 17.2%Operating Profit Margin 17.0% 33.6% 21.4% 11.4% 18.5% 19.1% 43.1% 26.7% 14.5% 22.8%


Teva

89


Revenue 19,652 19,652 100.0%Cost of Good Sold 8296 8,296 42.2%Gross Profit 11,356 11,356 57.8%R&D 1,525 1,525 7.8%Selling and Marketing 3,478 3,478 17.7%General and Administrative 1,239 1,239 6.3%Impairment 1,131 -1,131 0Legal Settlements 631 -631 0Operating Profit 3,352 1,762 5,114 26.0%


Teva

90


Revenue 20,272 20,272 100.0%Cost of Good Sold 9216 9,216 45.5%Gross Profit 11,056 11,056 54.5%R&D 1,488 1,488 7.3%Selling and Marketing 3,861 3,861 19.0%General and Administrative 1,217 1,217 6.0%Impairment 650 -650 0Legal Settlements -111 111 0Operating Profit 3,951 539 4,490 22.1%


Revenue 20,314 20,314 100.0%Cost of Good Sold 9607 9,607 47.3%Gross Profit 10,707 10,707 52.7%R&D 1,427 1,427 7.0%Selling and Marketing 4,080 4,080 20.1%General and Administrative 1,239 1,239 6.1%Impairment 788 -788 0Legal Settlements 1,524 -1,524 0Operating Profit 1,649 2,312 3,961 19.5%


Comment on Trend

91

TEVA 2015 2014 2013revenue growth -3.1% -0.2%Gross Profit Margin 57.8% 54.5% 52.7%R&D 7.8% 7.3% 7.0%Selling and Marketing 17.7% 19.0% 20.1%General and Administrative 6.3% 6.0% 6.1%OPM 26.0% 22.1% 19.5%


Comment on Trend

92

2017 2016 2015 2014 2013 2012 2011 2009 2008revenue growth 2.2% 11.5% -3.1% -0.2% 0.0% 10.9% 13.6% 16.0%gross profit margin 48.4% 57.2% 57.8% 54.5% 52.7% 52.4% 52.0% 56.2% 53.0%R&D/ sales 8.3% 9.6% 7.8% 7.3% 7.0% 6.7% 6.0% 5.9% 5.9%Selling 16.3% 17.6% 17.7% 19.0% 20.1% 19.1% 19.0% 18.4% 19.3%G&A 5.9% 5.6% 6.3% 6.0% 6.1% 6.1% 5.1% 5.4% 5.9%OPM 17.8% 24.3% 26.0% 22.1% 19.5% 20.6% 21.9% 26.6% 21.9%


Credit Mindset, Debt Sizing and Service

Income Statement Balance Sheet #1 #2 #3

Revenue 20,000 Cash 0 0 0

Cost of Sales 11,000 Operating Assets 20,000 20,000 20,000

S, G, Admin 6,000 Total Assets 20,000 20,000 20,000

Operating Profit 3,000 Payables 3,000 3,000 3,000

Interest Income 0 Debt 5,000 10,000 15,000EBIT/Operating Profit 3,000 Equity 12,000 7,000 2,000

RROOA Cost of Debt 3% 6% 10%Debt/Assets 25% 50% 75%

EBIT 3,000 3,000 3,000

Interest 150 600 1,500

EBT 2,850 2,400 1,500

Tax [30%] 855 720 450

Net Income 1,995 1,680 1,050

ROE 24.0% 52.5%

Interest Coverage 5.0X 2.0X


Ratio Medians

AAA AA A BBB BB B CCC EBIT interest coverage 25.8 19.5 8.0 4.7 2.2 1.2 [0.1]

EBITDA interest coverage 27.5 24.6 10.5 6.8 3.5 1.9 0.7 Funds from operations/total debt 203% 80% 48% 36% 22% 12% 3%

Free operating cash flow/total debt 128% 45% 25% 17% 8% 3% [3%] Pretax return on capital 28% 27% 18% 13% 11% 8% 1%

EBITDA/sales 23% 24% 18% 16% 15% 15% 9% Long term debt/capital 0% 21% 34% 40% 54% 73% 78%

Total debt/capitalization 5% 36% 43% 47% 58% 75% 92% Total debt/EBITDA 0.8 1.2 1.8 3.0 3.8 4.5 4.8

EBITDA/Assets 29% 24% 19% 15% 14% 11% 4% Number of companies 2 24 121 224 279 264 56


Ratio Medians

1 EBIT interest coverage EBIT, including equity income Gross Interest Expense plus capitalized interest

2 EBITDA interest coverage EBITDA, including distributed equity income

Gross Interest Expense plus capitalized interest

3 Funds Flow/Total Debt Funds Flow All Debt

4 Free Operating Cash Flow/Total Debt

CFO - Cap X All Debt

5 Pretax Return on Capital EBIT All debt + Equity+ Non Controlling Interest

6 Operating EBITDA margin Operating EBITDA Sales

7 Long Term Debt/Capital Long Term Debt Long Term Debt + Equity + Non Controlling Interest

8 Total Debt/Capital All Debt All debt + Equity+ Non Controlling Interest

9 Total Debt/EBITDA All debt EBITDA, including distributed equity income


Historical Default Rates - 1970 - 2010

Average cumulative default rates

1 year 5 years 10 years

AAA .00% .10% .49%

AA .02% .27% .62%

A .06% .76% 2.14%

BBB .18% 1.95% 4.90%

BB 1.16% 10.45% 20.10%

B 4.47% 26.17% 44.57%

CCC 18.16% 53.77% 72.38%

IG .09% 1.00% 2.57%

NIG 4.67% 21.80% 34.44%


2000-2016

97


EBITDA ratios

98

Debt repayment capacityEBITDA/[cash interest+cash tax+CapX+Dividends+7% debt]

Fixed Charge CoverageEBITDA/[cash interest+cash tax+CapX+Dividends+CPLTD]


Tesla

• We design, develop, manufacture and sell high-performance fully electric vehicles and advanced electric vehicle powertrain components.

• We are the first company to commercially produce a electric vehicle, the Tesla Roadster.

• The Tesla Roadster’s proprietary electric vehicle powertrain system is the foundation of our business.


Income Statement, Tesla

[millions] 2015 2014 2013 2012 2011 2010 2009

Revenue 4,046 3,192 1,998 413 204 117 112

Cost of Sales -2,696 -2,122 -1,452 -313 -102 -66 -172

R&D -718 -465 -232 -274 -209 -93 -19

SGA -734 -248 -104 -96 -58 -55 -26

Stock based comp

-198 -156 -81 -30 -22

Depreciation -426 -388 -190 -80 -65 -50 -46

Operating Profit -717 -187 -61 -392 -252 -147 -51

Other -40 2 22 -2 -2 -6 -1

Interest Expense -119 -100 -33 0 0 -1 -3

Income Before Tax

-875 -285 -71 -394 -254 -154 -55

Tax -13 -9 -3 0 0 0 0

Net Income -818 -294 -74 -394 -254 -154 -55

EBITDA


Balance Sheet, Teslamillions 2015 2014 2013 2012 2011 2010 2009

Cash 1,219 1,922 850 202 255 100 70

Accounts Receivables 169 227 50 26 10 7 3

Inventory 1,278 954 340 269 50 45 23

PPE 3,403 1,830 740 552 298 115 23

Operating Leases 1,791 767 299

Other 232 149 138 65 100 118 11

Total Assets 8,092 5,849 2,417 1,114 713 385 130

Payables 4,288 1,495 1,157 538 211 107 65

Convertible Debt 2,715 2,488 593 451 278 72 0

Convertible Pfd 0 0 0 0 0 0 319

Equity 1,089 912 667 125 224 206 -254

Shares [million] 131 126 123 114 105 95 7

Share price [12/31/2010]

$35

IPO price [7/19/2010] $17

Share price $212 $255 $211 $103


Cash Flows, Tesla

2015 2014 2013 2012 2011 2010 2009

Net Income -888 -294 -74 -396 -254 -154 -55

Depreciation 426 390 190 80 65 10 7

Stock Based 198 156 81 30 22

Balance Sheet Changes

-260 -309 70 20 38 16 -33

Cash Flow from Ops

-524 -57 265 -266 -128 -128 -81

Capital Spending

-1,635 -970 -264 -239 -184 -105 -12

Borrowing 365 1,753 140 190 204 72 0

Issuance of Equity

1,150 390 490 245 240 289 0

Other -65 -56 26 20 32 -98 153

Change in Cash -709 1,060 650 -50 160 30 60


Tesla, Enterprise Value, 2015

Market ValueDebt

Market Value Equity

Less cash EV

Market Survey

Earnings [EBITDA]

Multiple EV

Multiple of Earnings

Earnings [EBITDA]

Multiple EV

Multiple of Earnings [A]

$86,900 $703,000

Multiple of Earnings [F]

$12,400 $115,800

Multiple of Earnings [T]

$33,970 $327,900

R&D A=8,000 F=6,700 T=8,100 103


Tesla

• In November 2016, Tesla acquired Solar City, an installer of rooftop solar panels, in an all stock transaction.

• Elon Musk owns 21 percent of Tesla and 22 percent of SolarCity, making him the largest shareholder of both companies.

• SolarCity stock price rose over 35% since the transaction was first announced in late June.

https://www.bloomberg.com/quote/TSLA:US

https://www.bloomberg.com/quote/SCTY:US


Income Statement, Tesla[millions] 2017 2016 2015 2014 2013 2012 2011 2010 2009

Revenue 11,759 7,000 4,046 3,192 1,998 413 204 117 112

Cost of Sales

-7,900 -4,750 -2,696 -2,122 -1,452 -313 -102 -66 -172

R&D -1,378 -834 -718 -465 -232 -274 -209 -93 -19

SGA -2,010 -802 -734 -248 -104 -96 -58 -55 -26

Stock based comp

-467 -334 -198 -156 -81 -30 -22

Depreciation -1,636 -947 -426 -388 -190 -80 -65 -50 -46

Operating Profit

-1,632 -667 -717 -187 -61 -392 -252 -147 -51

Other -106 119 -40 2 22 -2 -2 -6 -1

Interest Expense

-471 -199 -119 -100 -33 0 0 -1 -3

Income Before Tax

-2,209 -747 -875 -285 -71 -394 -254 -154 -55

Tax -31 -27 -13 -9 -3 0 0 0 0

Net Income -2,241 -773 -888 -294 -74 -394 -254 -154 -55

EBITDA


Balance Sheet, Teslamillions 2017 2016 2015 2014 2013 2012 2011 2010 2009

Cash 3,522 3,498 1,219 1,922 850 202 255 100 70

Accounts Receivables

515 499 169 227 50 26 10 7 3

Inventory 2,263 2,067 1,278 954 340 269 50 45 23

PPE 16,374 11,903 3,403 1,830 740 552 298 115 23

Operating Leases 4,117 3,134 1,791 767 299

Other 1,864 1,563 232 149 138 65 100 118 11

Total Assets 28,655 22,664 8,092 5,849 2,417 1,114 713 385 130Payables 12,813 10,008 4,288 1,495 1,157 538 211 107 65

Debt 10,311 7,118 2,715 2,488 593 451 278 72 0

Convertible Pfd 0 0 0 0 0 0 319

Equity 5,531 5,538 1,089 912 667 125 224 206 -254

Shares [million] 169 161 131 126 123 114 105 95 7

Share price [12/31/2010]

$35

IPO price [7/19/2010]

$17

Share price $316 $214 $212 $255 $211 $103


Cash Flows, Tesla

2017 2016 2015 2014 2013 2012 2011 2010 2009

Net Income -2,241 -773 -888 -294 -74 -396 -254 -154 -55

Depreciation 1,636 947 426 390 190 80 65 10 7

Stock Based 467 334 198 156 81 30 22

Balance Sheet Changes

78 -631 -260 -309 70 20 38 16 -33

Cash Flow from Ops

-60 -123 -524 -57 265 -266 -128 -128 -81

Capital Spending

-3,415 -1,280 -1,635 -970 -264 -239 -184 -105 -12

Borrowing 3,140 1,775 365 1,753 140 190 204 72 0

Issuance of Equity

260 1,844 1,150 390 490 245 240 289 0

Other 50 571 -65 -56 26 20 32 -98 153

Change in Cash

-25 2,279 -709 1,060 650 -50 160 30 60


Tesla, Enterprise Value 2017

Market ValueDebt

Market Value Equity

Less cash EV

Market Survey

Earnings [EBITDA]

Multiple EV

Multiple of Earnings

Earnings [EBITDA]

Multiple EV

Multiple of Earnings [A]

$74,600 $763,000

Multiple of Earnings [F]

$13,200 $152,300

Multiple of Earnings [T]

$35,120 $317,900

CS $346 $2,900

Trina $412 $2,600 108


Performance, 2015 MSFT Apple

Cash 108,579 205,666

Operating Assets 67,644 84,813

Total Assets 176,223 290,479

Suppliers 60,848 106,662

Lenders 35,292 64,462

Equity 80,083 119,355

Revenue 93,580 233,715

Operating Profit 28,161 71,230

NOPAT 18,305 46,300

Book Invested Capital [book value of equity plus book value of debt less cash]

6,796 -21,849

Enterprise Value [market value of equity plus market value of debt less cash]

340,000 553,000


Yahoo

110

2014 2015 Fair Valuecash and mkt securities 10,222 6833Accounts Receivable 1,033 1,048Prepaids 420 603PPE, net 1,488 1,547Goodwill 5,152 808Intangibles 1,033 690Investment in Alibaba 39,868 31,172Investment in Affiliates 2,490 2,503Total Assets 61706 45204

Accounts Payables 1,232 1,278Tax payable on Alibaba ADSs 3,282 0Convertible Notes 1,170 1,233LT Liabilities 1,083 1,003Deferred Tax Alibaba Investment 16,154 12,611Common Equity 38,785 29,079Total Liabilites and Equity 61706 45204

Shares Outstanding 937 946Revenue 4,618 4,963Operating Profit 235 -233DA 1,027 1,070Share Price $50.11 $33.26 Enterprise Value


Amdocs

111

Amdocs is a multinational corporation headquartered in Chesterfield, Missouri, with support and development centers located worldwide. The company specializes in software and services for communications, media and financial services providers and digital enterprises. Its offerings include business support systems (BSS), operational support systems (OSS), open network solutions, Internet of Things, big data analytics and entertainment and media solutions. The company has a customer base of over 350 customers in more than 85 countries. Amdocs went public in 1998 and its ordinary shares are listed on the NASDAQ Global Select Market under the symbol DOX.


Amdocs

112

2015 adjusted IS Common Size

Revenue 3,643,538

Cost of Good Sold 2349488

Gross Profit 1,294,050

R&D 254,944

Selling and Marketing 440,085

Amortization 70,073

Restructuring 13,000

Operating Profit 515,948

Interest 2,544

Tax 67,241

Net Income 446,163

Equity 3,406,842

ROE


Amdocs [Peers]

113

Symbol: HPQ IBM ORCL ACN average

Period Ending: 10/31/15 12/31/15 5/31/16 8/31/15Fiscal Year 31-Oct 31-Dec 31-May 31-Aug

Total Revenue $103,355,000 $81,741,000 $37,047,000 $32,914,424Cost of Revenue $78,596,000 $41,057,000 $7,479,000 $23,105,185

Gross Profit $24,759,000 $40,684,000 $29,568,000 $9,809,239

Operating ExpensesResearch and Development $3,502,000 $5,247,000 $5,787,000 $0

Sales, General and Admin. $13,612,000 $19,748,000 $9,039,000 $5,373,370Operating Income $7,645,000 $15,689,000 $14,742,000 $4,435,869Interest Expense $0 $468,000 $1,467,000 $14,578

Income Tax $1,780,000 $2,581,000 $2,541,000 $1,136,741Net Income $5,865,000 $12,640,000 $10,734,000 $3,284,550

Total Equity $27,768,000 $14,262,000 $47,289,000 $6,133,725

Gross Profit 24.0% 49.8% 79.8% 29.8% 45.8%R&D 3.4% 6.4% 15.6% 0.0% 6.4%Operating Profit Margin 7.4% 19.2% 39.8% 13.5% 20.0%

ROE 21.1% 88.6% 22.7% 53.5% 46.5%


Amdocs

114

2015 adjusted IS Common SizeRevenue 3,643,538 3,643,538 100.0%Cost of Good Sold 2349488 2,349,488 64.5%Gross Profit 1,294,050 1,294,050 35.5%R&D 254,944 254,944 7.0%Selling and Marketing 440,085 440,085 12.1%Amortization 70,073 70,073 1.9%Restructuring 13,000 -13,000 0Operating Profit 515,948 13,000 528,948 14.5%

Interest 2,544 2,544Tax 67,241 67,241Net Income 446,163 13,000 459,163

Equity 3,406,842 3,406,842

ROE 13.5%


First Data

• First Data Corporation is a provider of electronic commerce and payment solutions for merchants and financial institutions globally and has operations in 35 countries, serving approximately 6.2 million merchant locations.

• FDC was incorporated in 1989 and was the subject of an IPO in connection with a spin-off from American Express in 1992.

• On September 24, 2007, the Company was acquired KKR. The merger resulted in FDC becoming privately held.


Income Statement, FDC 2014 2013 2012 2011 2010 2009

Revenue 11,152 10,809 10,680 10,714 10,380 9,314

Cost of Sales -2,741 -2,809 -2,864 -2,888 -3,023 -2,945

Other Operating Expenses -6,972 -6,877 -6,742 -6,884 -6,758 -5,924

Operating Profit 1,439 1,123 1,074 942 600 445

Other -58 -42 -87 131 30 -240

Interest Expense -1,753 -1,881 -1,897 -1,833 -1,800 -1,800

Income Before Tax -402 -800 -910 -760 -1,170 -1,594

Tax -82 -86 224 270 324 579

Net Income -484 -890 -685 -490 -847 -1,015

Equity Income 220 188 158 153 145 95

NCI -193 -177 -174 -180 -150 -90

Net Loss -458 -880 -701 -517 -852 -1,010

Depreciation 188 190 188 191 195 198

Amortization 870 902 976 1,044 1,075 1,100

EBITDA


Balance Sheet, FDC

2014 2013 2012 2011 2010 2009

Cash 358 425 608 530 510 738

Accounts Receivables

1,752 1,764 1,848 2,050 2,170 2,455

Settlement Assets

7,555 7,540 9,173 9,192 8,201 8,392

PPE 930 849 856 940 950 1,050

Goodwill 17,017 17,248 17,283 17,299 17,300 17,450

Intangibles 4,349 5,053 5,644 6,344 7,155 8,120

Other 2,308 2,361 2,487 1,100 1,259 1,528

Total Assets 34,269 35,240 37,899 37,455 37,544 39,735

Payables 10,748 10,792 12,462 11,541 10,874 12,030

Debt 20,873 22,755 22,811 22,803 22,610 22,605

Equity 2,648 1,693 2,626 3,111 4,060 5,100


Cash Flows, FDC

2014 2013 2012 2011 2010 2009

Net Income -458 -880 -701 -517 -852 -1,010

Depreciation 188 190 188 191 195 198

Amortization 870 902 976 1,044 1,075 1,100

Minority Interest 193 177 174 180 150 90

Other Changes 310 284 130 218 187 622

Cash Flow from Ops 1,103 673 767 1,116 755 1,000

Capital Spending -308 -184 -177 -203 -210 -200

Borrowing -2,105 -158 16 -211 14 -205

Other 1,243 -514 -483 -726 -787 -264

Change in Cash -67 -183 123 -24 -228 331


Pier 1

• Pier 1 began in 1962 with a single store.

• Since then, Pier 1 has grown to over 1,100 locations and has become the largest specialty retailer of imported home furnishings and decor.


Pier 1, Income Statement

2008 2007Net Sales 1,512 1,623Cost of Sales 1,072 1,149Selling, General, Administrative 527 700Operating Profit (88) (226)Non Operating Income 11 14Interest Expense (16) (16)Earnings Before Tax (93) (228)Tax (2) 1Net Earnings (95) (227)


Pier 1, Balance Sheet

FYE 2008 3rd Qtr 2008 FYE 2007

Cash 83 30 167

Acc Receivables 17 30 18

Inventory 412 573 360

Other Current Asset 58 62 85

Properties 124 121 150

Other Assets 46 44 45

Total Assets 740 860 825

Short Term Debt 0 110 0

Accounts Payable 106 121 95

Gift Cards 64 64 66

Accruals 130 130 140

Long Term Debt 180 180 180

Equity 260 255 344

Working Capital 270 270 329

Working Capital Needs 187 350 162


Financial Analytics, Earnings

•How is Avon doing financially?– Always start with profits


Financial Analytics

•Who are the peers [comparable companies] of Avon?

•Unlike most of Avon’s CPG competitors, which sell their products through third-party retail establishments (e.g., drug stores, department stores), – Avon’s business is conducted worldwide primarily in one channel, direct

selling


Common Size

Avon Peers

2005 2004 2005 2004

Sales 8,150 7,748 XXXX XXXX

Profit 846 846 XXXX XXXX

Margin 9.7% 9.8%


Profitability Analysis

• Profitability is the result of a large number of management policies and decisions.

• Analyze the financials from top down.– Start with revenues and move down the income statement to operating profit– Operating Profit is the most important subtotal on the income statement as it is

• Unleveraged • Core Business


Ratio Analysis

• Start with Operating Profit [Operating EBIT] for profitability ratios • Why is Operating Profit so important?

• The use and definition of ratios should be relevant for the purpose used and valid for the specific company

– Cross-check with • planned ratio and rules of thumb• industry averages and key competitors

• Distinguish clearly between level and trend analysis• Make sure you understand the definitions of ratios• Make sure you analyze segments• Make sure you understand the rating agency view• Credit Mindset:

– RROOA is more important than OPM


Measurement of Earnings

• Profitability Analysis– Mechanics, Analysis and Interpretation


The business cycle

• Define Seasonal and Cyclical businesses


Economies grow unevenly

129

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

1977197819791980198119821983198419851986198719881989199019911992199319941995199619971998199920002001200220032004200520062007200820092010201120122013201420152016

Change in GDP Recession

1977-2016 average


Sales and profits in a recession

• Understanding Operating Leverage is Critical. Define Operating Leverage:

_________________________________________________________

_________________________________________________________


Operating leverage

2017 2018

Revenue 10,000

Growth XXXXXXX 20%

Fixed costs 9,000

Variable costs 500

Op Profit

Operating Margin


Operating leverage

2017 2018

Revenue 10,000 8,000

Growth XXXXXXX -20%

Fixed costs 9,000 9,000

Variable costs 500 400

Op Profit 500 -1,400

Operating Margin 5%


Operating leverage

2017 2018

Revenue 10,000

Growth XXXXXXX 20%

Fixed costs 500

Variable costs 9,000

Op Profit 500

Operating Margin 5%


Operating leverage

2017 2018

Revenue 10,000 8,000

Growth XXXXXXX -20%

Fixed costs 500 500

Variable costs 9,000 7,200

Op Profit 500 300

Operating Margin 5% 4%


Sales & Earnings

• What happens in a recession to a procyclical business

– Sales?

– Earnings?

– Operating Cash Flow?


Analytically Adjusted Income Statement

• Companies use different presentation formats for their income statements. • In addition, the accounting rules for the income statement do not always reflect

comparability with – prior years or – forecasts or – with other firms.

• Most companies prepare their balance sheets and statements of cash flows in formats that are comparable to other companies.

• The analyst/associate must adjust the income statement by considering both – reported financial statements and – analytically adjusted income statement

• and must clearly identify any amounts and ratios as – reported or adjusted


Reformatting

• REFORMATTING – places amounts from the income statement into one of five sections:

• Operating • Non-Operating• Interest Expense, Gross• Tax Provision• Items Segregated for Analysis [net of tax]:

– Equity Income [leveraged after tax income]– NonControlling Interest [financial cost]– Items that Relate to More than One Year [non recurring]


Format

Income statement Reported1 Sales 10,0002 COGS (3,500)3 Selling, general, and administrative costs (4,500)4 Other operating expenses (100)5 Other operating expenses6 Other operating expenses7 = Operating Profit [Op EBIT] 1,900

8 Interest income 409 Other non-operating income (expense) (20)

10 Other non-operating income (expense)11 Other non-operating income (expense)12 = EBIT 1,920

13 Gross interest expense (300)

14 = EBT 1,620

15 Total tax expense (450)

16 = Income from continuing operations before equity income 1,170

17 Equity income 5018 (Income attributable to non-controlling interest) (10)

19 Discontinued operations (100)20 Reclassified items21 = Net income 1,110


FormatIncome statement Reported

1 Sales 10,000

2 COGS (3,500)

3 Selling, general, and administrative costs (4,500)

4 Other operating expenses (100)

5 = Other operating expenses

6 Other operating expenses

7 = Operating Profit 1,900

8 Interest income 40

9 Other non-operating income (expense) (20)

10 Other non-operating income (expense)


12 = EBIT 1,920

13 Gross interest expense (300)

14 = EBT 1,620

15 Total tax expense (450)

16 = Income from continuing operations before equity income 1,170

17 Equity income 50

18 (Income attributable to non-controlling interest) (10)

19 Discontinued operations (100)

20 Reclassified items

21 = Net income 1,110

22 Depreciation 200

23 Amortization 50

24 Stock Based Compensation 40

25 Credit EBITDA 2,210

26 Operating EBITDA 2,190

27 Credit EBIT 1,970

28 Funds Flow 1,460


Reformatting

• Operating: Sales & services and all the related expenses for operating the core business but excluding financing income and expense

• Non-Operating: Recurring Income, but not part of the core business• Interest Expense, Gross• Tax Provision• Items Segregated for Analysis [net of tax]:

– Equity Income [leveraged after tax income]– NonControlling Interest [financial cost]– Items that Relate to More than One Year

• gains & losses that relate to more than one year (or to a different year),– cumulative effect of change in accounting; – gain (loss) from of discontinued operations;– loss on early retirement of long-term debt; – Lifo liquidation gains; – Asset or goodwill impairment, writedowns, restructuring charges, acquisition related

charges, litigations, and gain and loss on the sale of assets.


Adjust

Income statement Reported 1 Recurring

1 Sales 10,000 10,000

2 COGS (3,500) (3,500)

3 Selling, general, and administrative costs (4,500) (4,500)

4 Other operating expenses (100) 100 0

5 = Other operating expenses 0

6 Other operating expenses 0

7 = Operating Profit 1,900 100 2,000

8 Interest income 40 40

9 Other non-operating income (expense) (20)


11 Other non-operating income (expense) 0

12 = EBIT 1,920 100 2,020

13 Gross interest expense (300) (300)

14 = EBT 1,620 100 1,720

15 Total tax expense (450) (450)

16 = Income from continuing operations before equity income 1,170 100 1,270

17 Equity income 50 50

18 (Income attributable to non-controlling interest) (10) (10)

19 Discontinued operations (100) (100)

20 Reclassified items (100) (100)

21 = Net income 1,110 0 1,110

22 Depreciation 200 200

23 Amortization 50 50

24 Stock Based Compensation 40 40

25 Credit EBITDA 2,210 100 2,310

26 Operating EBITDA 2,190 100 2,290

27 Credit EBIT 1,970 100 2,070

28 Funds Flow 1,460 100 1,560


Earnings Analysis, Cash Flow Lending

• Format and Adjust the Income Statement• Do level first

– the most recent year

• Level entails both – Relative analysis [peers] and – absolute analysis– Level analysis is also done at the segment level

• After level, then do trend analysis– Make sure you distinguish between the credit and equity mindset– Do trend for the entire business cycle


AAIS

• Par and Pfizer


A typical income statement

Sales Revenue 10,000

Cost of Sales (6,000)

Selling and General Expenses (2,000)

SUBTOTAL

Depreciation (400)

Amortization (60)

Stock Based Compensation (40)

SUBTOTAL

Interest Expense (500)

Earnings Before Tax 1,000

Tax Expense (350)

Net Income 650


Explorations in EBITDA.

• EBITDA is one of the most widely used financial metrics. – However, there is much confusion about the calculation, the use and the

interpretation of EBITDA.• What does EBITDA measure?

– Profits?

– Liquidity?

– Solvency?



• EBITDA is one of the most widely used financial metrics. • First, we need to understand what EBITDA measures:

• EBITDA measures the• Unleveraged [before interest cost]• Pretax [this is a problem]

• Expected [Potential] Operating Cash Flow of the Firm



• EBITDA is a profit measure, but does not include D or A [or S]• EBITDA is a liquidity measure

• but only when accrual and cash accounting are similar

• EBITDA is a solvency measure• but ignores tax and CAP X• Also, the capital structure


Expected [Potential] Cash Flow of the Firm is the Long Run Cash Flow from Operations

• EBITDA is the Expected [Potential] Cash Flow of the Firm• EBITDA can be the same as the

• Net Cash Flow from Operations [in the long run, before interest and tax]• The assumption is that ultimately accrual accounting profit converts to

cash flow• EBITDA is a good proxy of Unleveraged Pretax Operating Cash Flow in either of

these two scenarios1) The firm has a short cash cycle, i.e. the investment in accounts

receivable and inventory is small or it is financed by the suppliers2) The firm is not growing



• History of EBITDA– EBIT has been used as an analytic tool for decades

• It measures earnings without regard to the capital structure– Before January 1982, there were very few leveraged buyouts

• Pan Atlantic Steamship - 1955• Orkin - 1964• Borin - 1973

– In January 1982, former Treasury Secretary William Simon acquired Gibson Greetings for $80 million, with only $1 million in equity [$330,000 from Simon].

– Within one year, Gibson completed a $290 million IPO and Simon made $66 million

– Over the next 10 years, there were more than 2,000 LBOs– Why did buyouts start in 1982?

• Change in ERISA rules, interest rates, capital gains rate lowered in 1981


EBITDA History

• These buyouts often created significant goodwill• In the 1980’s, goodwill was expensed [amortized]

• Many financial sponsors of these buyouts complained that the amortization of goodwill should be ignored when calculating EBIT

• The argument was the Amortization [A] of Goodwill had no impact on • Real Cash Earnings• Firm Liquidity• Debt Servicing Capabilities

• Note: Be sure to understand any amortization of identifiable intangible assets and whether they need replacement

• EBIT was soon replaced by EBITA as a financial metric


EBITDA

• “People who use EBITDA are either trying to con you or they’re conning themselves. Telecoms, for example, spend every dime that’s coming in. Interest and taxes are real costs.

• Trumpeting EBITDA is a particularly pernicious practice. Doing so implies that depreciation is not truly an expense, given that it is a “non-cash” charge. That’s nonsense. In truth depreciation is a particularly unattractive expense because the cash outlay it represents is paid up front, before the asset acquired has delivered any benefits to the business. Imagine, if you will, that at the beginning of this year a company paid all of its employees for the next ten years of their service (in the way they would lay out cash for a fixed asset to be useful for ten years). In the following nine years, compensation would be a “non-cash” expense – a reduction of a prepaid compensation asset established this year. Would anyone care to argue that the recording of the expense in years two through ten would be simply a bookkeeping formality?”

151


CapX and Depreciation

2014 2015 2016 2017 2018

Net Income -250 -250 -250 -250

depreciation 250 250 250 250

BS changes

Net CFOps 0 0 0 0

CapX -1,000

Net CFInv -1,000

152


Explorations in EBITDA

• Within a short period of time, EBITDA replaced EBITA• EBIT

• Adjust for the Amortization of Goodwill– Why?

– Amortization of Goodwill never impacts Cash Flow From Operations– Goodwill doesn’t need to be “replaced”

– EBITA• Do you want to adjust for Depreciation of Tangible Fixed Assets?

– Why? Not sure– Depreciation of Tangible Fixed Assets never impacts CFO

» But, the firm still needs to reinvest in the business» Cap X

» Which a claim on CFO– EBITDA



• EBITDA has always had the following problems– EBITDA is an accrual accounting measure

• ignores the changes in working capital accounts in the balance sheet– EBITDA ignores any capital spending which the firm may need to make [and other

“investing” activities which give rise to amortization]– EBITDA ignores income tax, which is a “real” operating cost


Explorations in EBITDA, Distributor

2008 2010

Traditional EBITDA $122.3 million ($ 7.8 million)

Chg in AR ($ 55.7 million) $115.5 million

Chg In Inventory ($ 76.4 million) $ 82.0 million

Net Cash Flow from Operations ($ 35.7 million) $114.4 million


Explorations in EBITDA, Trucking

2016

Traditional EBITDA $317.5 million

Chg in AR & Inventory $5.5 million

Net Cash Flow from Operations $190.1 million

Depreciation $166.4 million

Capital Spending $195.3 million


Explorations in EBITDA, Pharma

2016

Traditional EBITDA $12,017 million

Chg in AR & Inventory $100 million

Net Cash Flow from Operations $9,144 million

Depreciation & Amortization $ 3,940 million

Capital Spending $ 1,015 million

No Amortization of Goodwill, but amortization of finite life intangibles is in the DA



• EBITDA is one of the most widely used financial metrics. • However, there is much confusion about the calculation of EBITDA.• Which items should be included or excluded from the calculation?



• When should the analyst use each of the following: – EBITDA– EBITA– EBIT– EBITDAR– EBITDAP– EBITDAS– EBITDARPS– EBITDA [Equity]– EBITDA [NCI]– EB [n] ITDA– Adjusted or Proforma EBITDA


EBITDA[s]

• Then in 2003, accounting changed rules for amortization to only amortize finite lived indentifiable intangibles

• And since 2005, firms are required to expense stock based compensation.

• So EBITDa or EBITDaS?

160


Calculating EBITDA, Bigger Concerns

• Which items should be included or excluded from the calculation? – Interest Income, – Operating Lease Cost [rent],– Non Controlling Interest, – Equity Income and/or Dividends Received from Affiliates,– Pension Cost,– Post Retirement Medical Cost,– Stock-based compensation expense


Calculating EBITDA, Bigger Concerns

• Which Unusual Items [Special Items] should be adjusted in calculating EBITDA?– LIFO gain or LIFO charge, – Foreign Exchange Gain and Losses,– Restructuring Charges and Litigation Charge,– Gain or Loss on Sale of Asset,– Gain or Loss on Early Redemption of Debt, – Impairment of Tangible and/or Intangible Assets,– Hedging Gains or Losses– Merger related costs


Profitability Ratios

• Sales Growth– Increase in sales from one year to the next

• Margin– Income statement amount related to sales

• Gross Profit Margin– Gross margin is the “value added" provided by the firm.

• [Revenues - Cost of Sales]• Operating Profit Margin

– An indication of the firm's true profitability. – This is considered one of the purest measure of the operating performance of the company, reflective of its recurring capabilities.

• [Revenues - Cost of Sales-Selling, Gen and Administrative Costs]• EBITDA [Earnings Before Interest, Tax and Depreciation and Amortization Expenses]

– Same as Operating Profit, but before depreciation and amortization expenses.• Total Asset Turnover [Sales/Assets]

– A measure of the amount of business [revenue] relative to assets• Return on Assets [this must be unleveraged] [RROOA]

– This is a measure of the profit relative to the firm’s assets • Operating Profit/Operating Assets

• Return on Invested Capital[this must be unleveraged]– This is a measure of the profit relative to the firm’s assets, financed by capital

• Net Operating Profit after tax/net Operating Assets• Return on Common stockholder's Equity

– This is a measure of the return on owner's investment in the firm. • NI to Common Owner /Common Equity


Profitability Measures

Sales

Sales Growth

Gross Profit Margin

Operating Profit Margin

EBITDA

Total Asset Turnover

Return on operating assets

Return on Invested CapitalReturn on equity


Profitability Analysis

• The following variables contribute to earnings:– environment [external]– operations [internal]– capital structure (debt vs. equity)– infrequent transactions


Common Size [OPM in 2014 11.3%]

Operating EBITDA margins

1995 2000 2005 2006 2007 2008 2009 2010 2011 2014

18.2% 18.0% 17.8% 18.1% 18.4% 18.9% 18.2% 21.0% 20.9% 20.1%


Developing an Appropriate Capital Structure

• Make sure that the capital structure is consistent with the lending rationale• Cause• Purpose• Rationale

• Then the lending rationale should be consistent with the debt structuring

• All loans need __________________________ ways out


8 Types of C&I Balance Sheets [Asset Profiles]

A B C D A1 B1 C1 D1

OPWC

NCA

PPE

Intangible


Cash Flows

169

Statement of Cash Flow

Net IncomeDepreciationAmortization

Chg in WC needChg in Acc RecChg in InventoryChg in PrepaidsChg in Acc PayChg in AccrualsChg in Tax Payable

Cash Flow from Operations


Sales Growth [10%]

170

2016 2017revenue 10,000EBITDA 1,000Funds Flow 600CFO

2016 2017

acc receivables 1,000inventory 800prepaids 100

acc payables 800accruals 900tax payable 150

Non cash WC [WCR]


Sales Growth [10%]

171

2016 2017revenue 10,000EBITDA 500Funds Flow 300CFO

2016 2017



Non cash WC [WCR]


Sales Growth [1%]

172

2016 2017revenue 10,000EBITDA 500Funds Flow 300CFO

2016 2017



Non cash WC [WCR]

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