Company Description
Our company produces and sells locally sourced organic tea.
Its current market share is approximately 0.4%, and we think they can grow that to 3.2% over time by taking share from competitors.
Industry Information
Industry: Beverages (tea)
Current Industry Size (USA): $6,800m
Expected Industry Growth Rate: 3.3% per year
Current Balance Sheet Data:
Total Cash = $20m
Total Debt = $50m
Total Equity = $50m
Key Company Ratios:
Revenuest/Invested Capitalt-1 = 40%
Operating Profit Margin = 30%
Pretax Interest Expense on Debt = 4%
Expected Tax Rate = 21%
Part 1: Setting up your model
1-What is this company’s Invested Capital, using current balance sheet information?
2-What should you expect their revenues to be next year, using the ratios given above?
3-What should you expect their Operating Income (EBIT) to be next year, using the ratios given above?
4-What should you expect their Interest Expense to be next year, using the ratios given above?
5-What should you expect their Net Income to be next year, using the ratios given above?
6-Calculate their ROIC [formula: EBITt x (1-tax rate) / Invested Capital t-1].