1. Introduction to Financial Management FIN 102 – 9th Week of Class
Professor Andrew L. H. Parkes
“A practical and hands on course on the valuation and financial management of corporations”
卜安吉

2. Funds and Cash Flow Chapter 7a: Funds Analysis and Planning
Financial Management Fall 2007
Shanghai

3. Intro. to Financial Managment - 10th Week of Class
Reconciliation FY 2003
Total Cash In from Operations $ 10,595 M
Total Cash Out from Investments 4,526 M
Total Cash Out from Financing ,586 M*)
Net Cash Position increase $ 2,483 M
Cash position at the end of FY 2002: $ 2, 894 M
Cash increase in FY 2003: , 843 M
Cash position at the end of FY 2003: $ M (see balance sheet)
Incl. exchange rate changes $ 277 M
Intro. to Financial Managment - 10th Week of Class

4. Intro. to Financial Managment - 10th Week of Class
Cash Flow Projections
Remember the most important parts of Cash Flow:
NOPAT
Depreciation
Change in Working Capital
CAPEX
Intro. to Financial Managment - 10th Week of Class

5. The value of the company
Remember V= FCF/WACC%
The value of a company depends on the endless streams of FCF
These cash flows need to be estimated based on today’s FCF and FCF’s in the past
You have to calculate the Present Value (remember Ch.3) of all these FCF’s
Your discount factor is the WACC% (the cost of capital)
Intro. to Financial Managment - 10th Week of Class

6. Let’s evaluate for J&J (Million $US)
FCF:
FY 2002
FY 2003
FY2004(e)
FY2005(e)
NOPAT
6597
7197
9090
9865
Depreciation
1662
1869
2050
2180
Change in WC
801
1540
-1730
-2280
CAPEX
-2197
-4526
-2488
-2737
FCF
6863
6080
6922
7028
Intro. to Financial Managment - 10th Week of Class

7. Putting it together…(V = FCF/WACC)
FCF (FY2004) 7028(FY2005)
Implied growth FCF after FY 2005: about 2%
What about WACC%:
Ke= Rf+ β(Rm-Rf)= 4 %+ 0.65*(3,5%)= 6.3%
Kd= LT interest/LT Debt=5.87%
Tax rate= tax/earnings before tax= 30.2% (FY 2003)
LT Debt= $ 2,955 M
Shareholders Equity= $ 26,869 M
WACC = D/(D+E)*Kd*(1-t)+ E/(D+E)*Ke=
2,955/(2,955+26,869)*5.87%*( )+26,869/(2,955+26,869)*6.3%=
6.1%
Intro. to Financial Managment - 10th Week of Class

8. So…the company value of J&J is:
PV= FCF (2004)/(1+Wacc%)+ FCF(2005)/(1+Wacc%)^2+….+FCF(n)/(1+Wacc%)^n
(where n=number of years and FCF’s)
Fill in for J&J:
V= 6922/(1.061)+ 7028/(1.061)^ /(1.061)^3+…+ 7028*(1.02)^(n-2)/(1.061)^n=
V= 6922/(1.061)+ 7028/(1.061)^ /( )-7028/ /(1.061)^2=
V= = $ 171,314 M
LT Debt is: $ 2955 M So the Equity Value is: $ 171,314M-$2955M= $ 168,359M
The number of shares outstanding is:
So the Equity Value per share is: $ M/ =$ 56.72
The Stock Market Price is: $ (closing 28 sep 2004)
Intro. to Financial Managment - 10th Week of Class

9. Intro. to Financial Managment - 10th Week of Class
Market Price J&J
Intro. to Financial Managment - 10th Week of Class

10. Homework Assignment: Valuation
Review the J&J example of valuation
Estimate the future cash flows of your company (use Valueline docs.)
Estimate the future growth % of FCF based on past and present performance
Estimate WACC
Estimate Company Value
Calculate the intrinsic value per share
Compare the market price…
Download the share performance of your company’s share (see example J&J)
Intro. to Financial Managment - 10th Week of Class

11. End of the Section – Chapter 7b
GO TO THE TOP! Mt. Machu Pichu!
Intro. to Financial Managment - 10th Week of Class