A. Prospective Analysis

Forecast future financial performance. Use the four valuation models outlined in class (Exclude Price Multiple) to produce an estimate of firm value, and compare to stock price. Perform sensitivity analysis and discuss the results.

1. Prepare your forecasts and write up the reasons for your forecast assumptions

2. Prepare your valuations and write up just the $ answers to your 4 models ((Exclude Price Multiple), as well as include share price on the date of your valuation (the date of your last set of reformatted financial statements (table 1)

3. For all of your forecasting and cost of capital assumptions1, write up your reasons for your optimistic and pessimistic outcomes (best and worst they ever did in last 5 years perhaps?) and calculate your sensitivity analysis. Only use the AOI model and Table 2 reports your sensitivity results. Again compare to share price and discuss your results

B. Application

Using your sensitivity analysis, and as a potential management consultant to your chosen firm, provide a discussion as to the possible opportunities for improvement, and potential challenges for your firm. Provide remedies for these concerns. You should be quite specific in any recommendations you make.

1. Your sensitivity testing will show you that your firm will be more sensitive to one of:

a. sales growth/cost of capital

b. PM

c. ATO

2. Depending on which of the three above is most important to your firm, come up with some ideas for specific things that your firm can do. For example, if sales growth matters don't just say "increase sales". You need to come up with creative ideas for your firm to increase sales. You never know, yours may be the next assignment sent on to your firm!

 AE: Abnormal Earnings

AOI: Abnormal Operating Income

ATO: Asset turnover

avg.: Average

C: Cash from Operations

CAPM: Capital Asset Pricing Model

CSE: Common Share Equity

d: Dividends (the net cash flow to share-holders)

F: Cash flow to & from Debt-holders

FCF: Free Cash Flow

FLEV: Financial Leverage

I: Cash Investment

NBC: Net Borrowing cost

NFEat: Net Financial Expense after tax

NFO: Net Financial Obligations

NOA: Net Operating Assets

NOPAT: Net Operating Profit after Tax

PM: Profit Margin

RNOA: Return on Net Operating Assets

ROE: Return on Equity

Spread: Difference between lending & borrowing rates

WACC: Weighted average cost of capital

Δ: Change

EIAT: Effective Interest After Tax

Assignment link - https://www.dropbox.com/s/yznpkmmdwy0pp77/Lectures.zip?dl=0.