Problem Set: Financial Projections
Question:
Buckeye Computer, Inc. produces high performance image generators for simulation (including PC-based visual system products) and visual workstations for high-end graphics applications. Its financial statements are shown in Exhibit 1 (excel filed posted on Canvas).
Suppose Buckeye management sets an annual revenue growth target of 20%. Estimate the free cash flows each year for the next five years 2014-2018. Use the following information to make your projections:
- Project all items (i.e. apart from sales) based on the 5-year historical average financial ratios all measured directly relative to sales** (e.g. Inventory/Sales).
- Assume a tax rate of 35%.
- There are two types of fixed assets: PPE and Other Fixed Assets. Both of them are part of the firm's operations and are measured net of depreciation.
- Other Current Assets refers to prepaid expenses related to the operations of the business.
EXHIBIT 1
BUCKEYE COMPUTER, INC.
($ millions)
|
Income Statement
|
2009
|
2010
|
2011
|
2012
|
2013
|
|
Sales
|
1,604
|
1,950
|
2,240
|
2,456
|
3,017
|
|
Cost of Goods Sold
|
842
|
1,020
|
1,226
|
1,517
|
1,739
|
|
R&D Expense
|
158
|
203
|
240
|
278
|
327
|
|
SG&A Expense
|
367
|
446
|
479
|
522
|
549
|
|
Operating Income (EBIT)
|
237
|
281
|
295
|
139
|
402
|
|
Interest Expense
|
8
|
6
|
5
|
13
|
14
|
|
Earnings before Tax
|
229
|
275
|
290
|
126
|
388
|
|
Income Taxes
|
85
|
108
|
107
|
40
|
141
|
|
Earnings (NI)
|
144
|
167
|
183
|
86
|
247
|
|
Dividends
|
0
|
18
|
28
|
45
|
49
|
|
to Retained Earnings
|
144
|
149
|
155
|
41
|
198
|
|
Balance Sheet
|
2009
|
2010
|
2011
|
2012
|
2013
|
|
Cash
|
103
|
58
|
45
|
17
|
30
|
|
Accounts Receivable
|
219
|
283
|
328
|
349
|
431
|
|
Inventory
|
282
|
348
|
420
|
500
|
584
|
|
Other Current Assets
|
18
|
22
|
24
|
28
|
32
|
|
Current Assets
|
622
|
711
|
817
|
894
|
1,077
|
|
Plant, Property & Equipment (net)
|
410
|
482
|
536
|
610
|
686
|
|
Other Fixed Assets
|
32
|
39
|
45
|
49
|
61
|
|
Total Assets
|
1,064
|
1,232
|
1,398
|
1,553
|
1,824
|
|
Accounts Payable
|
145
|
177
|
203
|
233
|
285
|
|
Accrued Expenses
|
30
|
32
|
34
|
18
|
31
|
|
Short Term Debt
|
41
|
31
|
19
|
124
|
35
|
|
Current Liabilities
|
216
|
240
|
256
|
375
|
351
|
|
Long Term Debt
|
55
|
50
|
45
|
40
|
137
|
|
Net Worth
|
793
|
942
|
1,097
|
1,138
|
1,336
|
|
Liabilities & Net Worth
|
1,064
|
1,232
|
1,398
|
1,553
|
1,824
|