H.B. Fuller is a formulator, manufacturer and marketer of adhesives, sealants, and chemical products. Co.'s North America Adhesives, Europe, India, Middle East and Africa, Latin America Adhesives and Asia Pacific segments produce and supply industrial and performance adhesives products for applications in various markets, including assembly (appliances, filters, construction), packaging (food and beverage containers), converting, nonwoven and hygiene, performance wood (windows, doors), textile, flexible packaging, graphic arts and envelope.
The Construction Products segment includes products used for tile setting and heating, ventilation, and air conditioning and insulation applications.
1. Construct the "Common Size" Income Statement and Balance Sheet using the historical financial statements provided in the excel file Fuller.xlsx (use tabs "BS_simplified " and "IS_simplified").
2. Compute historical annual growth rates (average growth rate and compound annual growth rate) and use the function trend to forecast sales.
3. Construct the following ratios:
Depreciation/Gross fixed assets
Interest expense/Average debt
Incomes Taxes/Pretax Income
Dividends/Net Income
Debt/equity
Debt/assets
4. Construct financial statements models for Fuller for 2014-2017. You may use the following assumptions to forecast the financial statements, or you may suggest other assumptions.
5. Use the financial statements models to determine if the company will have surpluses or deficits for 2014-2017. Reformulate your original model to accommodate the following assumptions:
A. The company will borrow if more funds are needed and increase cash/investment securities if there are fund surpluses.
B. The company will borrow if more funds are needed and pay off existing debt if there are fund surpluses.
C. The company will issue new equity if more funds are needed and repurchase stock if there are fund surpluses.
Assume minimum cash balances in all cases.
6. Estimate the WACC for the Company
Estimate cost of equity using both the Gordon Model and the CAPM. Download historical prices and dividends per share from Yahoo Finance.
Estimate cost of debt as Interest / Net Average Debt.
7. Estimate the share value for Fuller. Is the company undervalued or overvalued?
Assume a long term growth rate for Fuller of 4%.
8. Use the excel tool "Data Tables" to estimate the share value for different assumptions of sales forecasts, cost of capital, and long-term growth rate.
Download:- Fuller.xlsx