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Forecasting Overview and Historicals Deliverable September 14, 2002
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Topics 1. Deliverable 6: Historical Financials Update and Historical Ratios Online sources for historical 10-K and 10-Q filings 2. Forecasting Overview 3 categories of financial statements to forecast Operating Investing Financing Example model 3. Forecasting Revenues
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Topic 1: Deliverable 6: Historical Financials 1. Next week you will receive an Excel Workbook that includes a portion of the historical financial information. 2. The Excel Workbook is formatted in the Burkenroad Report Style and is not a model. You will create the forecast model during the course. 3. You will do ALL of your forecasting work in this workbook to insure that the links you create are not lost. Add as many worksheets as needed.
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Topic 1: Deliverable 6: Historical Financials 4. Excel Workbook sheets related to Deliverable 6: Statement worksheet: 5 sections on the statement worksheet Income statement (annual & quarterly) Income statement common size information Balance sheet (annual & quarterly) Balance sheet common size information Cash flow statement (annual & quarterly) Ratio worksheet (formulas are already linked to the statement information) The other worksheets are not used for the historical financials deliverable
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Topic 1: Historical Financials (Deliverable 6) Online sources for historical financial statement information as filed by the company with the SEC 2 Turchin library databases Other online sources of SEC filings FreeEdgar.com
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Recommended Sources for Historical Financial Statement Information
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SOURCES FOR HISTORICAL Information – deliverable 6 Recommended Sources for Historical Financial Statement Information
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DOWNLOAD IN EXCEL FORMAT Recommended Sources for Historical Financial Statement Information
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Company Overview Sanderson Farms Symbol: SAFM (C000004017) 225 N 13th Ave Exchange: NASNM CUSIP: 800013104 Laurel, MS 39440-4109 USA Sector: Consumer, Non-Cyclical SEDOL: 2774336 http://www.sandersonfarms.com Industry: Food Retailers & Wholesalers Company Status: Active Business Description View Profile Source: Compustat Key Financials View Financials Y2001 Y2000 Y1999 Sales 706.00 605.91 559.03 Operating Income 51.09 -0.59 23.01 Net Income 27.78 -5.57 10.55 Total Assets 288.97 281.86 283.51 Total Liabilities 144.63 161.84 152.67 EBITDA 77.25 26.13 48.07 Market Cap 230.13 Source: Compustat - Millions USD Key Ratios View Ratios P/E Ratio* 8.51 Dividend Yld 2.29 Price to Book 1.47 1Yr Tot Return 29.44 Price To CF 3.60 Beta** 0.86 1Yr Sales Growth 16.52 1Yr EPS Growth n/a Source: Worldscope,*IBES,**Worldscope Price Chart Interactive Chart Analyst Rating Source: I/B/E/S Estimate Revisions Source: I/B/E/S EPS Estimate Forecasts View Forecasts Source: I/B/E/S Quote: SAFM Last 18.100 Change 0.390 % Change 2.200% Open 17.500 High 18.100 Low 17.500 Close 17.710 Volume 22,700 52 Wk High 28.450 52 Wk Low 10.690 Currency as of 3:59:00 PM EST Source: ILX Systems Inc. at least 15 minutes delayed. Related Content Company Overview Company Profile Company Report Price Chart Detailed Quote Financials (Standardized) Ann. Financials (As Filed) Qtr. Financials (As Filed) Annual Ratios Earnings Peer Report Filings Summary Company News View Sources View Relationships CLICK ON FILINGS TAB AT TOP
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Recommended Sources for Historical Financial Statement Information Download Full Texts of Reports in Adobe Format – useful for key word searches Download Financials in Excel Format Advantage of this Database as compared to Edgarscan: Balance Sheet, Income Stmt & Cash Flow Stmt all download into the same workbook.
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Topic 2: Forecasting Overview We prepare the forecasts in 3 stages: Operating items on the income statement, balance sheet and cash flow statement Investing items on the income statement, balance sheet and cash flow statement Financing items on the income statement balance sheet and cash flow statement
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Income Statement Revenues: $ 200,000 Operating expenses( 150,000) Operating income: 50,000 Interest expense ( 6,000) Investment income 1,000 Income before income tax 45,000 less: Income Tax ( 15,000) Net Income $ 30,000 Operating
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Cash Flow Example Balance Sheet Assets: Cash$ 25,000 Accounts Receivable 32,000 Inventory 29,000 Investments 10,000 Fixed assets, net 180,000 Total $276,000 Liabilities and Equity: Accounts Payable$ 24,000 Long-term debt 80,000 Common Stock 147,000 Retained Earnings 25,000 Total$276,000 Operating Forecast all operating items simultaneously because operating items on each statement will be closely related to operating items forecast on the income statement. – Example: Accounts receivable is usually a consistent % of sales revenue.
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Operating cash flows: Net income$30,000 Depreciation expense10,000 Change in A/R(2,000) Change in Inv(3,000) Change in A/P5,000 Total cash used by operating activities$ 40,000 Cash used by investing activities: Purchase of fixed assets($10,000) Cash from financing activities: Borrowing, net of repayments(35,000) Payment of dividends (5,000) Total cash provided by financing activities(40,000) Net inflow for the year(10,000) Beginning cash balance:35,000 Ending cash balance $ 25,000 Cash Flow Statement Operating
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Income Statement Revenues: $ 200,000 Operating expenses( 150,000) Operating income: 50,000 Interest expense ( 6,000) Investment income 1,000 Income before income tax 45,000 less: Income Tax ( 15,000) Net Income $ 30,000 Operating Investing
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Cash Flow Example Balance Sheet Assets: Cash$ 25,000 Accounts Receivable 32,000 Inventory 29,000 Investments 10,000 Fixed assets, net 180,000 Total $276,000 Liabilities and Equity: Accounts Payable$ 24,000 Long-term debt 80,000 Common Stock 147,000 Retained Earnings 25,000 Total$276,000 Operating Investing
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Operating cash flows: Net income$30,000 Depreciation expense10,000 Change in A/R(2,000) Change in Inv(3,000) Change in A/P5,000 Total cash used by operating activities$ 40,000 Cash used by investing activities: Purchase of fixed assets($10,000) Purchase of investments(1,000) Total cash used in investing activities(11,000) Cash from financing activities: Borrowing, net of repayments(34,000) Payment of dividends (5,000) Total cash provided by financing activities(39,000) Net inflow for the year(10,000) Beginning cash balance:35,000 Ending cash balance $ 25,000 Cash Flow Statement Operating Investing
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Income Statement Revenues: $ 200,000 Operating expenses( 150,000) Operating income: 50,000 Interest expense ( 6,000) Investment income 1,000 Income before income tax 45,000 less: Income Tax ( 15,000) Net Income $ 30,000 Operating Investing Financing
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Cash Flow Example Balance Sheet Assets: Cash$ 25,000 Accounts Receivable 32,000 Inventory 29,000 Investments 10,000 Fixed assets, net 180,000 Total $276,000 Liabilities and Equity: Accounts Payable$ 24,000 Long-term debt 80,000 Common Stock 147,000 Retained Earnings 25,000 Total$276,000 Operating Investing Financing
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Operating cash flows: Net income$30,000 Depreciation expense10,000 Change in A/R(2,000) Change in Inv(3,000) Change in A/P5,000 Total cash used by operating activities$ 40,000 Cash used by investing activities: Purchase of fixed assets($10,000) Purchase of investments(1,000) Total cash used in investing activities(11,000) Cash from financing activities: Borrowing, net of repayments(34,000) Payment of dividends (5,000) Total cash provided by financing activities(39,000) Net inflow for the year(10,000) Beginning cash balance:35,000 Ending cash balance $ 25,000 Cash Flow Statement Operating Investing Financing
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Topic 2: Forecasting Overview Example Company Along with your Excel Workbook for your BURKENROAD company, I will send you an EXAMPLE Company that includes sample formulas for creating forecasted statements.
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Topic 3: Forecasting Revenues Revenues are the most important item you will forecast as this number is the primary determinate of your target price and your investment recommendation. Build a model for each revenue segment. The footnotes to your financial statements will include a segment footnote that describes revenues, costs, fixed assets, depreciation and capital expenditures for each segment. 4 Primary Revenue model types Data availability may drive the type of model you use since you are limited to publicly available data Use multiple models if possible and compare the results.
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Topic 3: Forecasting Revenues 4 Primary Revenue model types: 1. Revenue = Price per unit X Quantity Units are not always product units. For example, for a labor-intensive service company, the model may be Revenue = Avg. sales per employee X Avg. number of employees for the period For Piccadilly Cafeterias, the model may be Revenue = Avg. sales per store X Avg. number of stores
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Topic 3: Forecasting Revenues 2. Revenue = Total revenues forecast for the market X forecast market share for the company Define the market and collect sales information for the companies in this market on an historical basis – can be difficult if there are a number of private companies that comprise your market, e.g., many of SCP Pool’s competitors are private companies. Calculate the historical market share for your company Forecast total market revenues during the forecast period and forecast your company’s market share
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Topic 3: Forecasting Revenues 3. Revenues = Prior period revenues X forecast growth rate What growth rate is appropriate? Is there an indicator that is generally known and forecasted (e.g., GNP) and highly correlated with the segment revenues? Is it appropriate to “grow” sales by 10% per year based on prior growth patterns? This is a weak method and should be used only as a method of last resort.
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Topic 3: Forecasting Revenues 4. Balance sheet based model: Based on specific asset/revenue relationships Example: Banks Mortgage interest revenue = forecast interest rate X forecast avg. mortgages on the balance sheet Example: Trucking industry (transporting goods) Companies that generate revenues in relation to fixed asset investment Can use historical fixed asset turnover ratios (adjusted for utilization rates) to forecast revenues. Sales/Average fixed assets = fixed asset turnover Topic 3: Forecasting Revenues
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Case Example – Chis Kent Oil Service Industry Revenue Forecasts
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