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You are valuing DistressCo, a company struggling to hold market share. The company currently generates $120 million in revenue but is expected to shrink to $100 million next year. Cost of sales currently equals $90 million, and depreciation equals $18 million. Working capital equals $36 million, and equipment equals $120 million.

Using these data, construct operating-profit and invested-capital figures for the current year. You decide to build an as-is valuation of DistressCo. To do this, you forecast each ratio (such as cost of sales to revenues) at its current level. Based on this forecast method, what are operating profits and invested capital expected to be next year? What are two critical operating assumptions (identify one for profits and one for capital) embedded in this forecast method?

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Business Management, Management Studies

Category:- Business Management
Reference No.:- M92030845

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