An Example of Forecasting Without Plugs and Without Circularity

Transcription

1 Ingeniería Económica Universidad Tecnológica de Bolívar Ignacio Vélez Pareja In this teaching note the reader finds a simplified model similar to the one presented in the book Decisiones de Inversión. We indicate the formulas that have to be utilized in the construction of the financial model. We have constructed the formulas in such a way that they can be used to construct part of or the complete model. In the first line and in the first column we have written the letters and numbers corresponding to the Excel spreadsheet in order to make it easier the localization and the construction of the different formulas. In the last two columns we have written those formulas. Usually the formulas correspond to the year 0 and/or year 1. When necessary, we show the formulas for other years and we indicate it. Shaded cells are for the input data. This text has been revised several times, however, is possible that some mistake appears. In that case please inform to the author using the above mentioned addresses. Construct the model trying to understand why we use the different cells that appear in the formula and do not use this assignment as a typing exercise. Remember that the tables and formulas come from an English version of Excel. You should use the proper configuration in your Excel file in order to obtain the same appearance in the formulas. For instance, if you are using Spanish configuration in Excel, then the function IF will be shown as SI and the function Sum will be shown as SUMA. On the other hand, the argument separators when you use the Spanish configuration in Excel is ; semicolon and when you use the English configuration is. dot or period. An Example of Forecasting Without Plugs and Without Circularity Some assumptions 1. A new firm (starting from zero). 2. A simple firm with only one product 3. A commercial firm that purchases a product to be sold at a higher price 4. Taxes are paid the same year as accrued 5. All the expenses are paid on a cash basis. The only credit is from the supplier of product and has to be paid the following year. 6. Dividends are not greater than the Net Income of previous year. 7. Dividends are paid the next year after the Net Income is generated. 8. The firm can repurchase equity and the amount is defined as a percentage of the depreciation charge. (Depreciation retains cash in the firm that can be distributed). 9. In the model the limit of the repurchase of equity is the amount of depreciation charge. 10. Input prices are fixed and do not depend on volume purchased. 11. It is expected to invest in new assets in the fourth year. 12. Any deficit is covered by new debt. 13. Deficit in the operating module (Module 1) should be covered with short term loans. 14. Deficit in the after investment in fixed assets module (Module 2) should be covered with long term loans. 15. Short term loans will be repaid the following year. 16. Long term loans are repaid in 5 years for the first loan and in 10 years for the second. 17. Any cash excess is invested in short term securities. 1

2 18. Inventory valuation is done under the First in, First Out (FIFO) policy. 19. A deficit can arise in any year when a dynamic approach is used. In this example we only consider two types long term loans and one short term (for illustration purposes). 20. Short term portion of debt is not considered in the current liabilities. 2

3 Financial Statements and Intermediate Tables Table 1a. Input data B C D E F G H I 3 Year Input data 5 Fixed assets Lineal Depreciation (4 years) Initial equity investment Corporate tax rate 35.0% 9 Initial inventory (units) Initial purchase price Estimated Overhead expenses Administrative and Sales payroll Long term (LT) years Loan 1 at (N years) Long term (LT) years Loan 3 (M years) 10.0 Short term loan 2 (1 year) Taxes are paid the same year as accrued 17 Inflation rate 6.0% 5.5% 5.5% 5.0% 4.5% 18 Real increase in selling price 1.0% 1.0% 1.0% 1.0% 1.0% 19 Real increase in purchase price 0.5% 0.5% 0.5% 1.0% 1.0% 20 Real increase in overhead expenses 0.5% 0.5% 0.5% 0.5% 1.0% 21 Real increase in payroll expenses 1.5% 1.5% 1.5% 1.5% 1.5% 22 Real increase in price fixed assets 0.2% 0.2% 0.2% 0.2% 0.2% 23 Increase in sales volume (units) 0.0% 1.0% 2.0% 2.0% 2.5% 24 Real interest rate 2.0% 25 Risk premium for cost of debt 5.00% 26 Table 1b Policies and goals 27 Year Promotion and advertising as % of sales 3.0% 29 Inventory as % of volume sold 8.33% 8.3% 8.3% 8.3% 8.3% 30 % of sales received the same year 95.0% 31 % of purchases paid the same year 90.0% 32 Payout ratio 70.0% 33 Minimum cash required for years 1 to Minimum cash required for initial year (based on overhead, payroll and sales commissions) Selling commissions 4.00% 36 Market research 37 Selling price Quantity sold for first year Repurchase of equity as a % of funds generated by depreciation 0.0% 0.0% 0.0% 0.0% 0.0% 3

4 Table 2a Intermediate tables for the model B C D E F G H I J K Year Nominal increase in prices Year Year 0 Year 1 41 Nominal increase in selling prices 7.1% 6.6% 6.6% 6.1% 5.5% =(1+E$17)*(1+E18)-1 42 Nominal increase in purchase price 6.5% 6.0% 6.0% 6.1% 5.5% =(1+E$17)*(1+E19)-1 43 Nominal increase in overhead expenses 6.5% 6.0% 6.0% 5.5% 5.5% =(1+E$17)*(1+E20)-1 44 Nominal increase in payroll expenses 7.6% 7.1% 7.1% 6.6% 6.1% =(1+E$17)*(1+E21)-1 45 Nominal increase in price of fixed assets 6.2% 5.7% 5.7% 5.2% 4.7% =(1+E$17)*(1+E22) Year Year 1 Year 2 48 Increase factor in volume =(1+E23) =(1+F23) Basic input variables calculation Year Year 1 Year 2 51 Sales in units Year 1 =D38 Year 2 +E51*(1+F23) Selling price Year 0 Year 1 55 Total sales =D37 =D54*(1+E41) 56 Overhead expenses =E54*E51 57 Administrative and Sales payroll =D11 =D56*(1+E43) 58 Selling commissions =D12 =D57*(1+E44) 59 Promotion and advertising expenses =E55*$E$35 60 =E55*$E$28 61 Year Factor for increase in prices for fixed assets Price of asset in year =(1+E45) 64 Return of short term investment 8.12% 7.61% 7.61% 7.10% 6.59% year 4 ==> =H62*D5 65 Risk free rate, Rf 8.12% 7.61% 7.61% 7.10% 6.59% =((1+E17)*(1+$E$24)-1) 66 Cost of debt, Kd, from CAPM= Rf + risk premium 13.12% 12.61% 12.61% 12.10% 11.59% =((1+E17)*(1+$E$24)-1) in cost of debt Depreciation schedule 69 Year Year 0 Year 1 70 Beginning fixed assets =D74 71 Annual depreciation Year 4 =$D$74/$D$6 copy to left Year 5 =H73/$D$6 72 Cumulated depreciation =E71+D72 73 New fixed assets =D63 =E63 74 Net fixed assets =D5+D73 =E70-E71+E Inventory valuation using FIFO 77 Inventory and purchases in units Year Year 0 Year 1 78 Units sold =E51 79 Final inventory in units =D9 =E78*E29 80 Initial inventory in units =C9 =D79 81 Purchases in units =D78+D79-D80 =E78+E79-E80 82 Unitary cost of purchase 83 Year Year 0 Year 1 84 Purchases in units =D9 =E81 85 Forecasted unit cost =D10 =D85*(1+E42) Cost of goods sold (COGS) calculation Year Year 0 Year 1 4

5 B C D E F G H I J K Year Initial inventory in dollars =D80*D85 =D90 89 Purchases in dollars =D81*D85 =E81*E85 90 Final inventory in dollars =D85*D79 =E85*E79 91 COGS =D88+D89-D90 =E88+E89-E90 92 Administrative and selling expenses Year Year 0 Year 1 93 Sales commissions =E58 94 Overhead expenses =E56 95 Payroll expenses =E57 96 Promotion and advertising expenses =E59 97 Administrative and selling expenses =SUM(E93:E96) Sales and purchases Year Year 0 Year Total sales revenues =E Inflow of sales revenues for current year =E55*$E$ Credit sales (1 year) =E55-E Total purchases =E Purchases paid the same year =D89 =E89*$E$ Purchases on credit (1 year) =D89-D104 =E89-E Inflows from sales Year Inflow of sales revenues for current year =D101 =E Inflows from Accounts Receivables =C102 =D Total inflows =D109+D108 =E109+E Purchases paid the current year =D104 =E Payment of Accounts Payable =C105 =D Total payments for purchases =D112+D111 =E112+E111 5

6 Table 2b Intermediate tables for the model: Cash budget for year 0 to calculate the amount of the loan (independent calculation. No plug!) B C D J K Year 0 Year Module 1: Operating activities Year Cash inflows 118 Total AR plus sales on cash 119 Total inflows 0.0 =SUM(D117:D118) 120 Cash outflows 121 Total payments for purchases 20.0 =D Overhead expenses 123 Payroll payments 124 Sales commissions 125 Promotion and advertising 126 Income Taxes 127 Total cash outflows 20.0 =SUM(D120:D126) 128 Net cash balance NCB before fixed assets purchase =D119-D Module 2: Investment in assets 130 Purchase of fixed assets 45.0 =D5 131 Purchase of fixed assets Year NCB of investment in assets =-D130-D NCB after fixed assets investment 134 Module 3: External financing 135 Inflow of loans 136 Long term (LT) Loan 1-5 years 30.0 =IF(-(D132+D148)>0,-(D132+D148),0) 137 Short term (ST) Loan =IF(-(D128-D$34)>0,-(D128-D$34),0) 138 LT Loan 3-10 years 139 Payment of loans 140 Payment of LT loan Interest LT loan Payment of ST loan Interest ST loan Payment LT loan Interest LT loan NCB of financing activities 63.0 =SUM(C136:D145) 147 Module 4: Transactions with owners 148 Initial Invested equity 15.0 =D7 149 Dividends payment 150 Repurchase of stock 151 NCB of transactions with owners 15.0 =D148-D149-D Module 5: Discretionary transactions 153 Sale of short term ST investment 154 Return from St investments 155 ST investments 0.0 =IF(D128+D132+D146+D153+D154+D151-D34>0,D128+D132+D146+D153+D154+D151-D34,0) 156 NCB of discretionary transactions 0.0 =D153+D154-D Year NCB 13.0 =D128+D132+D146+D151+D Cumulated NCB 13.0 =D157 6

7 Table 2d Intermediate tables for the model: debt schedule B C D E F G H I J K Year LT Loan 1 schedule 161 Year Year 0 Year Beginning balance =D Interest payment LT =E167*E Principal payments LT =($D$166)/$D$ Total payment LT =E163+E Ending balance =D136 =E162-E Interest rate 13.12% 12.61% 12.61% 12.10% 11.59% =E ST Loan 2 schedule 169 Year Year 0 Year Beginning balance 171 Interest payment ST =D174*E Principal payments ST =D174/$D$ Total payment ST =SUM(E171:E172) 174 Ending balance =D137 =E Interest rate 13.12% 12.61% 12.61% 12.10% 11.59% =E Year Year 0 Year Beginning balance =D Interest payment LT =E182*D Principal payments LT =D179+D223/$D$ Total payment LT =E178+E Ending balance =D223 =E177-E179+E Interest rate 13.12% 12.61% 12.61% 12.10% 11.59% =E167 Table 3 Income Statement B C D E F G H I J 185 Income Statement Year Year Sales revenues =E COGS =E Gross Income =E186-E Administrative and selling expenses =E Depreciation =E Earnings Before Interest and Taxes (EBIT) =E188-E189-E Interest payments =E163+E178+E Return (interest) from ST investment =E64*D Earnings Before Taxes EBT =E191+E193-E Income Taxes =IF(E194<=0,0,E194*$D$8) 196 Net Income =E194-E Dividends =E196*$E$ Cumulated retained earnings =D198+E196-D Repurchase of equity =E190*E39 7

8 Table 4 Cash Budget B C D E F G H I J K 201 Module 1: Operating activities Year Year 0 Year Cash inflows 203 Total AR plus sales on cash =D118 =E Total inflows =D119 =E Cash outflows 206 Total payments for purchases =D121 =E Overhead expenses =D122 =E Payroll payments =D123 =E Sales commissions =D124 =E Promotion and advertising =D125 =E Income Taxes =D126 =E Total cash outflows =D127 =SUM(E206:E211) 213 Net cash balance NCB before fixed assets =D128 =E204-E212 purchase 214 Module 2: Investment in assets 215 Purchase of fixed assets 45.0 =D Purchase of fixed assets Year =D131 =E NCB of investment in assets =-D216-D215 =-E216-E NCB after fixed assets investment =D213+D217 =E213+E Module 3: External financing 220 Inflow of loans 221 LT Loan 1-5 years 30.0 =IF(-(D217+D233)>0,- (D217+D233),0) 222 ST Loan =IF(-(D213-D$34)>0,-(D213- D$34),0) 8 =IF((E213-E227-E228)>0,0,-(E213-E227-E228)) 223 LT loan 3 10 years =IF((D243+E218+E222-E225-E226-E227-E228-E229- E230+E236+E238+E239-E$33)>0,0,-(D243+E218+E222-E225- E226-E227-E228-E229-E230+E236+E238+E239-E$33)) 224 Payment of loans 225 Principal LT loan =D140 =E Interest LT loan =D141 =E Principal ST loan =D142 =D Interest ST loan =D143 =E Principal LT loan =D144 =E Interest LT loan =D145 =E NCB of financing activities =SUM(D221:D223)- =SUM(E221:E223)-SUM(E225:E230) SUM(D225:D230) 232 Module 4: Transactions with owners 233 Initial Invested equity 15.0 =D Dividends payment =D149 =D Repurchase of stock =D150 =E NCB of transactions with owners =D233-D234-D235 =E233-E234-E Module 5: Discretionary transactions 238 Sale of short term ST investment =D153 =D Return from ST investments =D154 =E64*E ST investments =D155 =IF(D243+E213+E217+E231+E236+E238+E239- E33>0,D243+E213+E217+E231+E236+E238+E239-E33,0) 241 NCB of discretionary transactions =D238+D239-D240 =E238+E239-E Year NCB =D241+D236+D231+D217+D213 =E241+E236+E231+E217+E Cumulated NCB =C243+D242 =D243+E242

9 Table 5 Complete Balance Sheet B C D E F G H I J K 248 Assets Year Year 0 Year Cash CB =D243 =E Accounts Receivable AR IT =D102 =E Inventory IT =D90 =E ST investments CB =SUM($D$240:D240)-SUM($D$238:D238) =SUM($D$240:E240)-SUM($D$238:E238) 253 Current assets =SUM(D249:D252) =SUM(E249:E252) 254 Total fixed assets IT =D74 =E Total =D254+D251+D250+D249+D252 =E254+E251+E250+E249+E Liabilities and equity 257 Accounts Payable AP IT =D105 =E Short term debt CB =SUM($D$222:D222)-SUM($D$227:D227) =SUM($D$222:E222)-SUM($D$227:E227) 259 Current liabilities =SUM(D257:D258) =SUM(E257:E258) 260 Long term debt CB =SUM($D$221:D221)+SUM($D$223:D223)- SUM($D$225:D225)-SUM($D$229:D229) 261 Total Liabilities =D260+D259 =E260+E Equity investment ID =D7 =D262+E Retained earnings IS =D198 =E Repurchase of equity =-E Total Liabilities and equity =SUM(D257:D264)-D261-D259 =SUM(E257:E264)-E261-E Check =D265-D255 =E265-E255 =SUM($D$221:E221)+SUM($D$223:E223)- SUM($D$225:E225)-SUM($D$229:E229) 9