Sample Final

FIN3516

1. Consider the following familiar example:

The three columns show correspondingly, the three time periods when each
transaction is recognized.
a.
b.
c.
d.

Make an accrual based earnings calculation. (5 points)

Make a cash flow based earnings calculation (5 points)
Link the two above showing the moving in working capital items (5 points)
Suppose now, that i) in step 6 above P and PCR are now 2500, while S an
PCU are 400 ii) in step 7 P and PCR are now 3400 and, S an PCU 5000. Do
your answers in your answer in a) and b) change due to the change in i) or
change in ii)? Explain why or why not. (11 points)

Answers: ( in answering this question, my expectation of a complete answer is

one similar to what I have in italics below- the rest is more detailed
explanation for your reading)
The exhibit is taken directly from our textbook:

Answers to a, b, and c are in the book on page 49, (a, b on upper side of page;
c starts in the middle of the page). See also below
a.
Revenue (1,3,4,5) 2600+4800+6000+1400=14800
COGS(1,3,4,5) 1000+2500+3100+1000=7600
In accrual based earnings calculation we only recognize
those transactions that have sales (transactions 1,3,4,5).
These are the transaction where there is a sale.
For exactly these transactions we also recognize the cost
(recall, cost is recognized in the period when the sales takes
place the cost of the good sold is the purchase price of the
inventory item (P) )
b.
Here we see where there has been a payment from
customer (transactions 12,3,4) for cash inflow, and payment
to creditor (1,4,5,6) for cash outflow.
Cash inflow (1,2,3,4) 2500+200+4800+6000=13600
Cash outflow (1,4,5,6) =1000+3100+1000+2500=7600

c.
Accrual based
earnings

7200
Begin
5600
200

Inventory
Accounts
receivable
Accounts payable 3100
Cash flow P0

end
6900
1400
3900

-1300
-1200
800
5500

d.
The change in step 6 (from 3000 to 2500) and the change in step 7 do not
affect our answer in a. The reason is that neither step 6 nor 7 carry any sales,
whereas in accrual based earnings calculation we only recognize those
transactions that have sales (transactions 1,3,4,5 in answer a).
However, step 6 decreases cash outflow by 500 in cash-flow based calculation
in step b, because transaction 6 includes a cash outflow, i.e., it includes a
payment to creditor. A reduction of 500 payment to creditor, reduces total cash
outflow from 8100 to 7600, making our cash flow generated in P0 equal to
6000
Cash inflow (1,2,3,4) 2500+200+4800+6000=13600 unchanged
Cash outflow (1,4,5,6) =1000+3100+1000+2500=7600 change

2. Profitability
Answer see excel sheet.
You are an analyst at a major investment company. The investment company
considers buying a small enterprise called AnotherAssignment ASA. Your employer
provides you with some data, in particular an income statement as well as a balance
sheet for the fiscal years 2009 and 2010. You are supposed to assess the
profitability.

Income Statement:
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Operating profit
Finance expense
Finance income
Profit/(loss) before taxation
Taxation
Profit/(loss)

2 009
1 332.6
-601.8
730.8
-359.1
-239.4
132.3
-104.3
15.0
43.0
-12.9
30.1

2 010
1 493.6
-634.2
859.4
-417.2
-278.2
164.0
-101.8
3.4
65.6
-19.7
45.9

Balance Sheet:
Non-current assets
Property, plant, and equipment
Intangible assets
Financial assets
Other receivable
Current assets
Inventory
Trade and other receivables
Derivative financial instrumnets
Cash and short term deposits
Total assets
Current liabilities
Trade and other payables
Financial liabilities
Non-current liabilities
Trade and other payables
Financial liabilities
Derivative financial instruments
Deferred income tax liabilities
Total liabilities
Equity/(deficit)
Share capital
Retained earnings
Total equity

2009
257.6
726.0
0.2
51.8
1 035.6

2010
268.7
729.2
0.3
51.8
1 050.0

140.6
53.2
20.4
161.1
375.3
1 410.9

126.3
72.2
16.4
206.3
421.2
1 471.2

260.8
39.8
300.6

287.5
39.8
327.3

78.0
754.0
13.7
94.8
940.5
1 241.1

85.3
782.2
8.5
94.1
970.1
1 297.4

120.0
49.8
169.8

120.0
53.8
173.8

Q1: Compute the Net Operating Profit after Tax (NOPAT) for both years. Reconcile
the companys profit from the NOPAT by adding financial expenses and income, and
the relevant tax savings due to deductibility of interest rates for year 2009. (6 points)
Q2: Analyze the balance sheet of AnotherAssignment ASA so that you marked the
contributions of operating and financing activities. Compute invested capital in two
ways: (8 points)
1) Start with total assets and deduct financing related assets and operating
liabilities.
2) Start with equity, and add financing liabilities and deduct financing assets.

Q3: Compute following ratios to assess profitability: return on invested capital (ROIC)
before and after tax, turnover rate of investment capital, and profit margin before and
after tax.(6 points)

3. Liquidity
Answer see excel sheet
You are provided with data for YetAnotherCompany ltd for the fiscal years 2014 and
2015. You are interested in assessing the short and long-term liquidity of the
company. In addition, you know that the Cash Flow from Operations (CFO) amounts
to 680 in 2014 and 702.2 in 2015.

Income Statement:
Revenue
Cost of sales
Gross profit
Staff costs
Other administrative costs
Other operating income
EBITDA
Depreciation and
amortization
EBIT
Net financial expenses
Income before tax
Tax
Income after tax

2014
890.0
-501.8
388.2
-130
-123.3
-10
124.9
-50

2015
950.0
-534.2
415.8
-140
-120.1
-10
145.7
-55

74.9
-5
69.9
-20.97
48.9

90.7
-7
83.7
-25.11
58.6

Balance Sheet:
Non-current assets
Property, plant, and
equipment
Intangible assets
Financial assets
Other receivable

2014
257.6

2015
268.7

726.0
0.2
51.8
1 035.6

729.2
0.3
51.8
1 050.0

140.6
53.2
20.4

126.3
72.2
16.4

161.1

206.3

375.3
1 410.9

421.2
1 471.2

100.8
199.8
300.6

87.5
239.8
327.3

832.0
108.5

867.5
102.6

Total liabilities

940.5
1 241.1

970.1
1 297.4

Equity/(deficit)
Share capital
Retained earnings
Total equity

120.0
49.8
169.8

120.0
53.8
173.8

Current assets
Inventory
Trade and other receivables
Derivative financial
instrumnets
Cash and short term
deposits
Total assets
Current liabilities
Trade and other payables
Financial liabilities
Non-current liabilities
Financial liabilities
Derivative financial
instruments

Q1: Assess short-term liquidity risk by computing liquidity cycle, current ratio, quick
ratio, and CFO to short-term debt ratio. (7 points)

Q2: Assess long-term by computing following key ratios: financial leverage, solvency
ratio, interest coverage ratio, and CFO to debt ratio. (7 points)

4. Forecasting and valuation

Answer. See excel sheet
Construct pro-forma financial statements for XYZ Company for the fiscal years 2016
and 2017. (It is not required to complete a cash flow statement in 2015, but all lines
required for 2016 and 2017). (each question below 8 points)
Q1 balance sheet
Q2 income statement, and
Q3 cash flow statement

(below use information from todays class on equty returns following the CAPM
modeal, to calculate return on equity, and then WACC, assuming =1, and market
premium = 11%, and assuming that WACC always stays at its 2015 level.)

Q4 Value the company using EVA valuation (use information from todays class,
assuming =1, and market premium is equal to 11%)
Q5 Value the company using DCF valuation
Assumptions for forecast years:
1) Tax rate is 29%
2) Depreciation rate is 15% (use contemporaneous non-current assets as
benchmark)
3) Sales grow with 3% per year
4) EBITDA margin is 35%
5) Cost of debt (interest paid on net interest bearing debt) is constant (use
2015 value)
6) Non-current assets to sales ratio is 40%
7) Current assets to sales ratio is 20%
8) Non interest bearing debt to sales ratio is 8%
9) Net interest bearing debt to total assets ratio is 30%
10) The complete free cash flow to equity is paid out as dividend

Income Statement:
Net revenue/ sales
Cost of sales
Gross profit
SG&A
Net other operating
income/expenses
EBITDA
Depreciation and amortization
EBIT
Tax on EBIT
NOPAT
Net financial expenses
Tax
Net income/ Profit after tax

2 015
30 000
-12 000
18 000
-1 800
-3 600

2016E

2017E

12 600
-1 800
10 800
-3 132
7 668
-216
63
7 515

Balance Sheet:
Non-current assets, total
Current assets, total
Total assets
Total non interest bearing
debt

2 015
12 000
6 000
18 000

15 600

Equity at begin
Profit after tax
Dividends
Equity at end

10 200

Invested capital

2017E

2 400

Invested capital

Net interest bearing debt

2016E

5 400
15 600

Cash flow statement (also fill in missing account below NOPAT):

2 015
NOPAT

2016E

2017E

Cash flow from operations

Investment non-current assets
Free cash flow to the firm
Net financial expenses
Change interest bearing debt
Free cash flow to equity
Dividends
Cash surplus