INTERACTIVE TEMPLATES FOR USE WITH

TECHNIQUES OF FINANCIAL ANALYSIS, 10th Edition README

README
by ERICH A. HELFERT
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© Modernsoft Inc., 1999

All rights reserved
 README
README

© Modernsoft Inc., 1999

All rights reserved
Chapter 1: The Business System - An Overview Income Statement
Key Assumptions Balance Sheet Cash Flow
Operations: Price (per unit) 12 The Business System
Volume (units) 1,000 New
Fixed costs 2,000 investment
Variable costs - % sales 70% 1,230
Depreciation - % fixed assets 5% Depreciation
Investment: Current assets - % sales 25% effect Dis-investment Investment
Current liabilities - % costs 15% 400 Investment 250
Capital expenditures 750 base
Dis-investment 250 8,900
Financing: Interest rate 10% Work cap. change Investment change Cap. Expenditures
Tax rate 40% 480 580 750
Dividend payout 60%
Debt/equity ratio - targeted 60%
Debt as % of capitalization 38%

Price Volume
Income Statement Period 1 12 Costs 1,000
Sales 12,000 (fixed & variable) Operations
Costs 10,400 10,800
Depreciation 400
Operating profit (EBIT) 1,200
Interest 343
Profit before taxes 857
Taxes 343 Operating profit Interest
Net income 514 Dividends after taxes (tax adjusted)
Dividends 309 309 720 206
Retained earnings 206
Retained
earnings
Balance Sheet Base Period Period 1 206
Current assets 2,500 3,000 Financing
Fixed assets 8,000 8,100 Shareholders'
Assets 10,500 11,100 equity Long-term debt
5,925 3,555
Current liabilities 1,600 1,620 Change in stock Funds surplus Change in debt
Long-term debt 3,300 3,555 119 (deficit) 255
Shareholders' equity 5,600 5,925 -191
Liabilities and equity 10,500 11,100 Funding
potential
Working capital 900 1,380 389
Capitalization 8,900 9,480

Cash Flow Statement Uses Sources

Operating Activities: -1,000 -500
Cash Flow 500
0 1,000 1,500
Net income 514
Depreciation 400 Capital expenditures
-750
Change in working capital -480
Cash provided by operating activites 434 Dis-investments
250

Investing Activities: -480 Working capital

Capital expenditures -750
Dis-investments 250 Income (cash basis)
914
Cash (used in) investing activities -500
Proceeds from debt
255
Financing Activities:
Proceeds from stock
Debt proceeds (repayments) 255 119
Dividends paid -309
Stock proceeds (repurchase) 119 Dividends
-309
Cash from financing activites 66
Investing Operating Financing
Change in cash 0

© Modernsoft Inc., 1999

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Chapter 3: System View of Key Ratios and their Elements
Key Assumptions Income Statement / Balance Sheet
Ratios Chart Cash Flow Statement
Key Assumptions EBIT
Operations: margin
Price (per unit) 12 10.0% Operating
Volume (units) 1,000 Operating decisions profit margin
Fixed costs 2,000 Income tax 6.0%
Variable costs - % sales 70% rate
Investment: 40.0% Return on
Current assets - % sales 25% investment
Current liabilities - % sales 15% 7.74%
Capital expenditures 750 Working capital
Dis-investment 250 turnover
Depreciation % fixed assets 5% 10.0 Capital
Financing: Investment decisions turnover
Interest rate 10% Fixed asset 1.3
Tax rate 40% turnover
Dividend payout 60% 1.5 Return on equity
Debt/equity ratio - targeted 60% (ROE)
Debt as percent of capitalization 38% 8.88%
Long-term Debt proceeds
Income Statement Period 1 debt 188
Sales 12,000 3,488 Leverage Net leverage
Costs 10,400 Financing decisions proportions contribution
Depreciation 400 Payout/ 60.0% 1.14%
Operating profit (EBIT) 1,200 retention Stock proceeds Interest rate
Interest 339 40.0% 6 after tax
Profit before taxes 861 Equity Ret. earnings 5.84%
Taxes 344 5,813 207 "Spread"
Net income 516 1.90%
Dividends 310
Retained earnings 207

Balance Sheet Base Period Period 1 Note: For purposes of illustration, all calculations in the chart above
Current assets 2,500 3,000 (except for interest expense/rate) are based on year end balances.
Fixed assets 8,000 8,100
Assets 10,500 11,100 In practice, using average balance might be more appropriate.

Current liabilities 1,600 1,800

Long-term debt 3,300 3,488
Shareholders' equity 5,600 5,813
Liabilities and equity 10,500 11,100

Working capital 900 1,200

Capitalization 8,900 9,300

Cash Flow Statement

Operating Activities:
Net income 516
Depreciation 400
Change in working capital -300
Cash provided by operating activites 616

Investing Activities:
Capital expenditures -750
Dis-investments 250
Cash (used in) investing activities -500

Financing Activities:
Debt proceeds (repayments) 188
Dividends paid -310
Stock proceeds (retirements) 6
Cash from financing activites -116

Change in cash 0
© Modernsoft Inc., 1999
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Chapter 4: Projection of Financial Requirements - Cash Budgets

Key Assumptions Accounts Receivable Pro forma income statements

Cash Budget by Month Inventory Analysis Pro forma balance sheets
Collection Pattern - Sales Accrued Liabilities

KEY ASSUMPTIONS Aug Sep (e) Oct Nov Dec Jan

Current sales and forecast 1,925,000 2,050,000 2,175,000 2,300,000 2,450,000 2,625,000

Current purchases and forecast 750,000 675,000 650,000 650,000 650,000 650,000
Terms: net (days) 45 45 45 45

Collection period (days): 63 60 50 50 40 40

Date change effective (e.g. 31 = 31st of month ) 31 30 20 31

Materials usage 825,000 825,000 825,000 825,000

Wages and salaries (paid as incurred) 215,000 215,000 215,000 215,000
Other manufacturing expenses (paid as incurred) 420,000 420,000 420,000 420,000
Depreciation 43,000 43,000 43,000 43,000
Cost of goods sold as percent of sales 70.0% 70.0% 70.0% 70.0%
Selling and administrative expenses % sales 15.0% 15.0% 14.0% 14.0%
Payments on note payable 750,000
Interest due 300,000
Dividends payable 25,000 25,000
Income taxes due 375,000
Income tax rate 50.0% 50.0% 50.0% 50.0%

XYZ COMPANY
Cash Budget by Month
Six Months Ended March 31, 2002 ($000's)

Oct Nov Dec Jan

Cash receipts:
Collections 2,608 2,092 2,983 2,400

Cash disbursements:
Payments for purchases 1.50 months lag 713 663 650 650
Wages 215 215 215 215
Other expenses 420 420 420 420
Selling and administrative expense 326 345 343 368
Note repayments - 750 - -
Interest payments - - - 300
Dividend payments 25 - - 25
Tax payments - - - 375
Total disbursements 1,699 2,393 1,628 2,353

Net cash receipts (disbursements) 910 (301) 1,355 48

Cumulative cash flow 910 609 1,964 2,012

Collection Pattern - Sales ($000's)

Month of sale
Timing of collections Days Aug Sep Oct Nov Dec Jan
Oct. 1-10 60 642 - -
Oct. 11-20 60 642 - -
Oct. 21-31 50 642 683 -
Nov. 1-10 50 - 683 - -
Nov. 11-20 50 - 683 - -
Nov. 21-30 50 - - 725 -
Dec. 1-10 50 - 725 - -
Dec. 11-20 40 - 725 767 -
Dec. 21-31 40 - - 767 -
Jan. 1-10 40 - 767 - -
Jan. 11-20 40 - - 817 -
Jan. 21-31 40 - - 817 -
Feb. 1-10 40 - 817 -
Feb. 11-20 40 - - 875
Feb. 21-28 40 - - 875
Mar. 1-10 40 - 875
Mar. 11-20 40 - -
Mar. 21-31 40 - -

Accounts Receivable ($000's)

% $000's
August sales 100.0% 1,925
September sales 100.0% 2,050
Sept. 30, 2001 3,975 60 days

October sales 0.0% -

November sales 33.3% 767
December sales 100.0% 2,450
Dec. 31, 2001 3,217 40 days

January sales 0.0% -

February sales 33.3% 917
March sales 100.0% 2,850
March 31, 2002 3,767 40 days

Inventory Analysis ($000's)

12/31/2001 3/31/2002
Raw materials:
Beginning balance (ending 9/30/01) 3 month average 2,725 2,725 6 month average
Purchases 650 per mo. 1,950 3,900 650
4,675 6,625
Withdrawals 825 per mo. 2,475 4,950 825
Ending balance 2,200 1,675

Finished goods:
Beginning balance (ending 9/30/01) 3 month average 6,420 6,420 6 month average
Materials 825 per mo. 2,475 4,950 825
Wages 215 per mo. 645 1,290 215
Other expenses 420 per mo. 1,260 2,520 420
Depreciation 43 per mo. 129 258 43
10,929 15,438
Cost of goods sold reported 4,848 10,605
Ending balance 6,082 4,833
Accrued Liabilities ($000's)

12/31/2001 3/31/2002

Beginning balance (ending 9/30/01) 2,875 2,875

Accrued interest 75 150
Accrued taxes (income statement) 494 1,171
3,444 4,196
Interest payment - 300
Tax payment - 375
Balance shown 3,444 3,521

XYZ COMPANY
Pro Forma Income Statements ($000's)
3 months ended 6 months ended
12/31/2001 3/31/2002
Sales 6,925 15,150
Cost of goods sold 4,848 10,605
Gross margin 2,078 4,545
Selling and administrative 1,014 2,054
Interest 75 150 Assume annual interest of
Profit before taxes 988 2,341
Income taxes 494 1,171
Net income 494 1,171 Net income: 1/1/02 - 3/31/02

XYZ COMPANY
Pro Forma Balance Sheets ($000's)

9/30/01 (e) 12/31/2001 3/31/2002

Cash 740 2,704 4,035
Accounts receivable 3,975 3,217 3,767
Raw materials 2,725 2,200 1,675
Finished goods 6,420 6,082 4,833
Plant and equipment (net) 7,210 7,081 6,952
Other assets 1,730 1,730 1,730
Total assets 22,800 23,013 22,991

Accounts payable 1,050 975 975 45

Notes payable 4,120 3,370 2,620
Accrued liability 2,875 3,444 3,521
Long-term debt 5,250 5,250 5,250
Preferred stock 1,750 1,750 1,750
Common stock 5,000 5,000 5,000
Retained earnings 2,755 3,224 3,876
Total liabilities 22,800 23,013 22,991
Collections calculation:

Lag Sales Sales 000's Collectx Change Date

10 Aug. 1-10 641,667 641.7
20 Aug. 11-20 641,667 641.7
30 Aug. 21-31 641,667 641.7
40 Sep. 1-10 683,333 683.3 60.0
50 Sep. 11-20 683,333 683.3 60.0
 60 Sep. 21-30 683,333 683.3 60.0
70 10 Oct. 1-10 725,000 725.0 50.0 31 10
80 20 Oct. 11-20 725,000 725.0 50.0 31 20
90 40 Oct. 21-31 725,000 725.0 50.0 31 31
100 50 Nov. 1-10 766,667 766.7 50.0 30 10
110 60 Nov. 11-20 766,667 766.7 50.0 30 20
120 70 Nov. 21-30 766,667 766.7 50.0 30 31
130 80 Dec. 1-10 816,667 816.7 40.0 20 10
140 100 Dec. 11-20 816,667 816.7 40.0 20 20
150 110 Dec. 21-31 816,667 816.7 40.0 20 31
160 120 Jan. 1-10 875,000 875.0 40.0 31 10
170 130 Jan. 11-20 875,000 875.0 40.0 31 20
180 140 Jan. 21-31 875,000 875.0 40.0 31 31
190 150 Feb. 1-10 916,667 916.7 40.0 28 10
200 160 Feb. 11-20 916,667 916.7 40.0 28 20
210 170 Feb. 21-28 916,667 916.7 40.0 28 31
220 180 Mar. 1-10 950,000 950.0 40.0 31 10
230 190 Mar. 11-20 950,000 950.0 40.0 31 20
240 200 Mar. 21-31 950,000 950.0 40.0 31 31
250 250
260 260
270 270
280 280
290

10
20
Collection all preceding periods; fill in gaps 30
in sequencing (10-40) 40
50
Lag Diff Lag Calc Lag 1 Lag 2 Lag 3 Lag 4 60
10 10 10 10 - - - 70
20 10 20 20 - - - 80
40 20 30 30 40 - - 90
50 10 50 50 - - - 100
60 10 60 60 - - - 110
70 10 70 70 - - - 120
80 10 80 80 - - - 130
100 20 90 90 100 - - 140
110 10 110 110 - - - 150
120 10 120 120 - - - 160
130 10 130 130 - - - 170
140 10 140 140 - - - 180
150 10 150 150 - - - 190
160 10 160 160 - - - 200
170 10 170 170 - - - 210
180 10 180 180 - - - 220
190 10 190 190 - - - 230
200 10 200 200 - - - 240

Payment of purchases - 30 60 90 120 150 180

July (e) Aug Sep (e) Oct Nov Dec Jan Feb
750,000 750,000 675,000 650,000 650,000 650,000 650,000 650,000
 - - 45 45 45 45 45
payment 712,500 662,500 650,000 650,000 650,000

1 2 3 4 5 vlookup
Terms: - 1 2 3 Month lag
15 0.5000 0.5000
30 1.0000
45 0.5000 0.5000 15
60 1.0000
90 1
o forma income statements
o forma balance sheets

Feb Mar
2,750,000 2,850,000

650,000 650,000
45 45

40 40
28 31

825,000 825,000
215,000 215,000
420,000 420,000
43,000 43,000
70.0% 70.0%
12.0% 12.0%
750,000

50.0% 50.0%

Feb Mar Total

2,567 2,708 15,358

650 650 3,975

215 215 1,290
420 420 2,520
330 342 2,054
750 - 1,500
- - 300
- - 50
- - 375
2,365 1,627 12,064

202 1,081 3,295

2,213 3,295

Feb Totals: 15,358

 2,608

2,092

2,983

2,400

-
- 2,567
-
-
917 2,708
917

6 month average
per mo.

per mo.

6 month average
per mo.
per mo.
per mo.
per mo.
 Assume annual interest of 300

Net income: 1/1/02 - 3/31/02 677

days

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Change? Collect

60
60
 60 Aug Sep Oct Nov Dec Jan Feb
- 60 Oct. 1-10 642 - -
- 60 Oct. 11-20 642 - -
1 50 Oct. 21-31 642 683 -
- 50 Nov. 1-10 - 683 - -
- 50 Nov. 11-20 - 683 - -
1 50 Nov. 21-30 - - 725 -
- 50 Dec. 1-10 - 725 - -
1 40 Dec. 11-20 - 725 767 -
- 40 Dec. 21-31 - - 767 -
- 40 Jan. 1-10 - 767 - -
- 40 Jan. 11-20 - - 817 -
1 40 Jan. 21-31 - - 817 -
- 40 Feb. 1-10 - 817 - -
- 40 Feb. 11-20 - - 875 -
1 40 Feb. 21-28 - - 875 -
- 40 Mar. 1-10 - 875 -
- 40 Mar. 11-20 - - 917
1 40 Mar. 21-31 - - 917

10 20 30 40 50 60 70 80 90
Sales: 642 642 642 683 683 683 725 725 725
Aug. 1-10 Aug. 11-20 Aug. 21-31 Sep. 1-10 Sep. 11-20 Sep. 21-30 Oct. 1-10 Oct. 11-20 Oct. 21-31
Aug. 1-10
Aug. 11-20
Aug. 21-31
Sep. 1-10
Sep. 11-20
Sep. 21-30
Oct. 1-10 641.7 - - - - - - - -
Oct. 11-20 - 641.7 - - - - - - -
Oct. 21-31 - - 641.7 683.3 - - - - -
Nov. 1-10 - - - - 683.3 - - - -
Nov. 11-20 - - - - - 683.3 - - -
Nov. 21-30 - - - - - - 725.0 - -
Dec. 1-10 - - - - - - - 725.0 -
Dec. 11-20 - - - - - - - - 725.0
Dec. 21-31 - - - - - - - - -
Jan. 1-10 - - - - - - - - -
Jan. 11-20 - - - - - - - - -
Jan. 21-31 - - - - - - - - -
Feb. 1-10 - - - - - - - - -
Feb. 11-20 - - - - - - - - -
Feb. 21-28 - - - - - - - - -
Mar. 1-10 - - - - - - - - -
Mar. 11-20 - - - - - - - - -
Mar. 21-31 - - - - - - - - -

210
Mar
650,000 Purchases
 45 Terms
650,000
 100 110 120 130 140 150 160 170 180 190
767 767 767 817 817 817 875 875 875 917
Nov. 1-10 Nov. 11-20 Nov. 21-30 Dec. 1-10 Dec. 11-20 Dec. 21-31 Jan. 1-10 Jan. 11-20 Jan. 21-31 Feb. 1-10

- - - - - - - - - -
- - - - - - - - - -
- - - - - - - - - -
- - - - - - - - - -
- - - - - - - - - -
- - - - - - - - - -
- - - - - - - - - -
766.7 - - - - - - - - -
- 766.7 - - - - - - - -
- - 766.7 - - - - - - -
- - - 816.7 - - - - - -
- - - - 816.7 - - - - -
- - - - - 816.7 - - - -
- - - - - - 875.0 - - -
- - - - - - - 875.0 - -
- - - - - - - - 875.0 -
- - - - - - - - - 916.7
- - - - - - - - - -
 200 210 220 230 240
917 917 950 950 950
Feb. 11-20 Feb. 21-28 Mar. 1-10 Mar. 11-20 Mar. 21-31

- - - - -
- - - - -
- - - - -
- - - - -
- - - - -
- - - - -
- - - - -
- - - - -
- - - - -
- - - - -
- - - - -
- - - - -
- - - - -
- - - - -
- - - - -
- - - - -
- - - - -
916.7 - - - -
Chapter 5: Break-Even Analysis
Key Assumptions Profit and Losses as a Function of Volume Changes
Operating Break-Even Chart
Key Assumptions
Contribution per unit
Revenue 750
Variable costs 250
Contribution 500
Fixed costs 200
Break-even volume 400
Profits and losses as a function of volume changes of 25.0%

Profits and Losses as a Function of Volume Changes of 25.0%

Volume Increase Profits Increase

400 -
500 25.0% 50,000
625 25.0% 112,500 125%
781 25.0% 190,625 69%
977 25.0% 288,281 51%
1,221 25.0% 410,352 42%

Volume Decrease Losses Decrease

400 25.0% -
300 25.0% 50,000
225 25.0% 87,500 75%
169 25.0% 115,625 32%
127 25.0% 136,719 18%
95 25.0% 152,539 12%
$ Thousands

1,000
Operating Break-Even Chart

900

800

700
Total
600 revenue

500 Variable
costs
400
Fixed costs
300

200 200

100

- Volume
0 100 200 300 400 500 600 700 800 900 1000 1100 1200
 s as a Function of Volume Changes
k-Even Chart

Volume
0
100
200
300
400
500
Total 600
revenue 700
Variable 800
costs 900
Fixed costs 1000
1100
1200

Volume
1100 1200

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All rights reserved
Revenue Variable Fixed
- 200 200
75 225 200
150 250 200
225 275 200
300 300 200
375 325 200
450 350 200
525 375 200
600 400 200
675 425 200
750 450 200
825 475 200
900 500 200
Chapter 5: Basic Financial Growth Model
Key Assumptions
Net assets (capitalization) 500.0 Results Sustainable Growth Equation
Debt as percent of capitalization 50.0% Income Statement The Business System - Overview
Gross return on net assets 10.0% Balance Sheet Cash Flow (graph)
Interest rate (before tax) 6.0% Cash Flow Statement
Tax rate 33.3%
Dividend payout 0.0%

Capital structure:
Debt as percent of capitalization 50.0% Sustainable Growth Equation
Debt to equity ratio 100.0%
Debt 250.0 ROS
Equity 250.0 20.0%
Net assets (capitalization) 500.0 Debt to equity x
ROC 100.0% Sustainable Sales / assets
Profitability (after taxes): 10.0% x growth rate 40.0%
Gross return on net assets 10.0% x + ( ROC - i ) = = x
Amount of profit 50.0 Retention rate 6.0% 16.0% Financial leverage
Interest rate (before tax) 6.0% 100.0% x 200.0%
Tax rate 33.3% Retention rate x
Interest rate (tax-adjusted) 4.0% 100.0% Retention rate
Amount of interest (tax-adjusted) 10.0 100.0%
Profit after interest 40.0

Disposition of profit:
Dividend payout 0.0% The Business System
Dividends paid - New
Reinvestment of profit 40.0 investment
105
Financing: Depreciation Dis-investment
Additional debt 40.0 effect Investment
Funding potential 80.0 25 Investment base
#REF!

Cash flow implications: 500

Amount of aftertax profit 40.0 Work cap. change Investment change Cap. Expenditures
Depreciation effect 25.0 80
Cash flow from operations 65.0
Dividends paid -
Cash flow available for reinvestment 65.0
Additional debt 40.0
Total investment potential 105.0
Price Volume
Results:
Net return on net assets 8.0% Costs Operations
(fixed & variable)
Return on equity 16.0%
Growth in equity 16.0%

Income Statement Period 1

Sales 200
Costs 100
Dividends Operating profit Interest
Depreciation 25 after taxes (tax-adjusted)
Operating profit 75 0 50 10
Interest 15
Income before taxes 60 Retained earnings
Taxes 20 Financing
Net income 40 40
Dividends 0
Retained earnings 40 Shareholders' Long-term debt
equity
Balance Sheet Period 0 Period 1 290 290
Current assets Change in stock Funds surplus Change in debt
Fixed assets 0 (deficit) 40
Assets 500 580 0
Funding potential
Current liabilities
Long-term debt 250 290 80
Shareholders' equity 250 290
Liabilities and equity 500 580

Working capital
Capitalization 500 580

Cash Flow Statement

Operating Activities:
Net income 40 Uses Sources
Cash Flow
Depreciation 25
Change in working capital -120 -100 -80 -60 -40 -20 0 20 40 60 80
Cash provided by operating activites 65
-105
Investing Activities: Investment potential

Capital expenditures -105

Dis-investments 65
Cash flow from operations
Cash (used in) investing activities -105

Financing Activities: 40
Debt
Debt proceeds (repayments) 40
Dividends paid 0
Stock proceeds (repurchase) 0 Stock 0
Cash from financing activites 40

Increase (decrease) in cash 0 0 Dividends

Beginning cash 0
Ending cash 0 Investing Operating Financing
Chapter 5: Financial Growth Model - Impact of Different Policies

Policy assumption inputs Capital structure Financing (next year)

Profitablity (after taxes) Cash flow implications
Disposition of profit Results

POLICY ASSUMPTION INPUTS: Case I Case II Case III Case IV Case V Case VI Case VII
Net assets (capitalization) 500.0 500.0 500.0 500.0 500.0 500.0 500.0
Debt as percent of capitalization 0.0% 50.0% 50.0%
Gross return on net assets 10.0% 10.0% 10.0%
Interest rate (before tax) 0.00% 6.00% 6.00%
Tax rate 33.3% 33.3% 33.3%
Dividend payout 0.0% 0.0% 50.0%
Depreciation effect 25.0 25.0 25.0

Capital structure: Case I Case II Case III Case IV Case V Case VI Case VII
Debt as percent of capitalization 0.0% 50.0% 50.0% 0.0% 0.0% 0.0% 0.0%
Debt to equity ratio 0.0% 100.0% 100.0% 0.0% 0.0% 0.0% 0.0%
Debt - 250.0 250.0 - - - -
Equity 500.0 250.0 250.0 500.0 500.0 500.0 500.0
Net assets (capitalization) 500.0 500.0 500.0 500.0 500.0 500.0 500.0

Profitability (after taxes):

Gross return on net assets 10.0% 10.0% 10.0% 0.0% 0.0% 0.0% 0.0%
Amount of profit 50.0 50.0 50.0 - - - -
Interest rate (before tax) 0.00% 6.00% 6.00% 0.00% 0.00% 0.00% 0.00%
Tax rate 33.3% 33.3% 33.3% 0.0% 0.0% 0.0% 0.0%
Interest rate (tax-adjusted) 0.00% 4.00% 4.00% 0.00% 0.00% 0.00% 0.00%
Amount of interest (tax-adjusted) - 10.0 10.0 - - - -
Profit after interest 50.0 40.0 40.0 - - - -

Disposition of profit:
Dividend payout 0.0% 0.0% 50.0% 0.0% 0.0% 0.0% 0.0%
Dividends paid - - 20.0 - - - -
Reinvestment of profit 50.0 40.0 20.0 - - - -

Financing:
Additional debt - 40.0 20.0 - - - -
Funding potential 50.0 80.0 40.0 - - - -

Cash flow implications:

Amount of aftertax profit 50.0 40.0 40.0 - - - -
Depreciation effect 25.0 25.0 25.0 - - - -
Cash flow from operations 75.0 65.0 65.0 - - - -
Dividends paid - - 20.0 - - - -
Cash flow available for reinvestment 75.0 65.0 45.0 - - - -
Additional debt - 40.0 20.0 - - - -
Total investment potential 75.0 105.0 65.0 - - - -

Results:
Net return on net assets 10.0% 8.0% 8.0% 0.0% 0.0% 0.0% 0.0%
Return on equity 10.0% 16.0% 16.0% 0.0% 0.0% 0.0% 0.0%
Growth in equity 10.0% 16.0% 8.0% 0.0% 0.0% 0.0% 0.0%
Chapter 5: Five-Year Projection - Effect of Policy Changes

Policy assumption inputs Capital structure Financing (next year)

Profitablity (after taxes) Cash flow implications
Disposition of profit Results
($ thousands)
POLICY ASSUMPTION INPUTS: Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
Net assets (capitalization) 900.0
Debt as percent of capitalization 33.3% 43.0% 43.0% 50.0% 50.0% 50.0%
Gross return on net assets 8.0% 7.0% 8.0% 8.0% 9.0%
Interest rate (before tax) 6.00% 6.00% 6.00% 6.75% 6.75%
Tax rate 33.3% 33.3% 33.3% 33.3% 33.3%
Dividend payout 60.0% 50.0% 50.0% 50.0% 40.0%
Depreciation effect 40.0 46.0 50.0 65.0 72.0

($ thousands)
Capital structure: Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
Debt as percent of capitalization 33.3% 43.0% 43.0% 50.0% 50.0% 50.0%
Debt to equity ratio 50.0% 75.4% 75.4% 100.0% 100.0% 100.0%
Debt 300.0 470.7 492.5 688.9 728.5 787.5
Equity 600.0 624.0 652.9 688.9 728.5 787.5
Net assets (capitalization) 900.0 1,094.7 1,145.4 1,377.7 1,457.0 1,575.0

Profitability (after taxes): Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

Gross return on net assets 8.0% 7.0% 8.0% 8.0% 9.0% 0.0%
Amount of profit 72.0 76.6 91.6 110.2 131.1 -
Interest rate (before tax) 6.00% 6.00% 6.00% 6.75% 6.75% 0.00%
Tax rate 33.3% 33.3% 33.3% 33.3% 33.3% 0.0%
Interest rate (tax-adjusted) 4.00% 4.00% 4.00% 4.50% 4.50% 0.00%
Amount of interest (tax-adjusted) 12.0 18.8 19.7 31.0 32.8 -
Profit after interest 60.0 57.8 71.9 79.2 98.3 -

Disposition of profit: Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

Dividend payout 60.0% 50.0% 50.0% 50.0% 40.0% 0.0%
Dividends paid 36.0 28.9 36.0 39.6 39.3 -
Reinvestment of profit 24.0 28.9 36.0 39.6 59.0 -

Financing (next year): Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

New debt, old ratio 12.0 21.8 27.1 39.6 59.0 -
New debt, revised ratio 158.7 - 169.2 - - (787.5)
Funding potential 194.7 50.7 232.3 79.2 118.0 (787.5)

Cash flow implications: Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

Amount of aftertax profit 60.0 57.8 71.9 79.2 98.3 -
Depreciation effect 40.0 46.0 50.0 65.0 72.0 -
Cash flow from operations 100.0 103.8 121.9 144.2 170.3 -
Dividends paid 36.0 28.9 36.0 39.6 39.3 -
Cash flow available for reinvestment 64.0 74.9 86.0 104.6 131.0 -
Additional debt 170.7 21.8 196.3 39.6 59.0 (787.5)
Total investment potential 234.7 96.7 282.3 144.2 190.0 (787.5)
Results: Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
Net return on net assets 6.7% 5.3% 6.3% 5.8% 6.8% 0.0%
Return on equity 10.0% 9.3% 11.0% 11.5% 13.5% 0.0%
Growth in equity 4.0% 4.6% 5.5% 5.8% 8.1% 0.0%
Earnings per share 100,000 0.60 0.58 0.72 0.79 0.98 -
Dividends per share 0.36 0.29 0.36 0.40 0.39 -
Chapter 6 - 7: Comparing Alternatives - Present Value Analysis
Present Value Analysis Project Cash Flows Chart

Key Assumptions TOTALS 0 1 2 3 4 5 6 7 8 9 10

Net investment outlay & recovery -10,500 -11,500 1,000

Annual benefits 28,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000
Depreciation 1,500 1,500 1,500 1,500 1,500 1,500 1,500
Tax rate 36.0%
PV Factor 14.0%

TOTALS 0 1 2 3 4 5 6 7 8 9 10

Tax rate @36% 36% 36% 36% 36% 36% 36% 36% 36% 36% 36%
Aftertax benefits 17,920 2,560 2,560 2,560 2,560 2,560 2,560 2,560 0 0 0
Depreciation tax shield 3,780 540 540 540 540 540 540 540 0 0 0
Total project cash flows (incl. recovery) 11,200 -11,500 3,100 3,100 3,100 3,100 3,100 3,100 4,100 0 0 0
PV Factor @ 14% 1.000 0.877 0.769 0.675 0.592 0.519 0.456 0.400 0.351 0.308 0.270
Present value of investment cash flows -11,100 -11,500 0 0 0 0 0 0 400 0 0 0
Present value of operating cash flows 13,294 2,719 2,385 2,092 1,835 1,610 1,412 1,239 0 0 0
Present value of total cash flows -11,500 2,719 2,385 2,092 1,835 1,610 1,412 1,639 0 0 0
Cumulative present value -11,500 -8,781 -6,395 -4,303 -2,467 -857 555 2,193 2,193 2,193 2,193

Net present value @ 14% 2,193

Profitability index (BCR) @ 14% 1.20
Internal rate of return 19.9%
Present value payback @ 14% 6 Year *
*
10000

Project Cash Flows

5000

Depreciation tax shield

Annual benefits - aftertax 0
Net investment outlay & recovery $ 0 1 2 3 4 5 6 7 8 9 10 11

-5000

-10000
Chapter 9: Analysis of Financing Choices

Key Assumptions Recap of EPS Analyses

Balance Sheet Zero EPS Calculation
Range of EBIT and EPS Chart EPS Calculation - Original

Key Assumptions ($000's)

Operations: Original New EPS ($) ABC CORPORATION: Range o
7.00
EBIT - before new product 7,999
EBIT - incremental from new product 2,000
Investment: 6.00
Current assets 15,000
Fixed assets (net) 29,000
Other assets 1,000 5.00 5.28
Current liabilities 7,000
Financing:
4.00
New financing (debt/preferred/common) 10,000
Tax rate 34.0% 34.0%
Interest rate 11.5%
3.00
Preferred dividend rate 12.5% 2.75
Dividends per share $ 2.50 $ 2.50
Common shares O/S (000's) 1,000 1,275 2.00
Price per common share (net) $ 10.00 $ 36.36
Cost of capital 13.25%
Retained earnings 28,000 1.00

Balance Sheet (original)

0.00
Current assets 15,000
0.00 2.00 4.00 6.0
EBIT ($m
Fixed assets 29,000
Other assets 1,000
Assets 45,000

Current liabilities 7,000

Long-term debt 0
Preferred stock 0
Common stock 10,000
Retained earnings 28,000
Liabilities and equity 45,000

ABC CORPORATION
Recap of EPS Analyses with new Product ($000's)
New Financing of $10 Million
Original Debt Preferred Common
Earnings before interest and taxes (EBIT) 7,999 9,999 9,999 9,999
Less: Interest charges on long-term debt 0 1,150 0 0
Earnings before income taxes 7,999 8,849 9,999 9,999
Less: Incomes taxes at 34% 2,720 3,009 3,400 3,400
Earnings after income taxes 5,279 5,840 6,599 6,599
Less: Preferred dividends 0 0 1,250 0
Earnings available for common stock 5,279 5,840 5,349 6,599

Common shares outstanding (000's) 1,000 1,000 1,000 1,275

Earnings per share (EPS) $ 5.28 $ 5.84 $ 5.35 $ 5.18
Less: Common dividends per share $ 2.50 $ 2.50 $ 2.50 $ 2.50
Retained earnings per share $ 2.78 $ 3.34 $ 2.85 $ 2.68
Retained earnings in total 2,779 3,340 2,849 3,412
Original EPS change (before new product) -14.4% -23.7% -21.6%
Final EPS change (with new product) 10.6% 1.3% -2.0%
Specific cost 7.59% 12.50% 13.25%

ABC CORPORATION
Zero EPS Calculation ($000's)
New Financing of $1 Million
Original Debt Preferred Common
Earnings per share (EPS) 0 0 0 0
Common shares outstanding (000's) 1,000 1,000 1,000 1,275
Earnings available for common stock 0 0 0 0
Preferred dividends 0 0 1,250 0
Earnings after taxes 0 0 1,250 0
Incomes taxes at 34% 0 0 644 0
Earnings before income taxes 0 0 1,894 0
Interest charges on long-term debt 0 1,150 0 0
EBIT or zero EPS 0 1,150 1,894 0

ABC CORPORATION ABC CORPORATION

Earnings per Share Calculation - Original ($000's) Earnings per Share with New Bond Issue ($

Original
Earnings before interest and taxes (EBIT) 7,999 Earnings before interest and taxes (EBIT)
Less: Interest charges on long-term debt Less: Interest charges on long-term debt
Earnings before income taxes 7,999 Earnings before income taxes
Less: Incomes taxes at 34% 2,720 Less: Incomes taxes at 34%
Earnings after income taxes 5,279 Earnings after income taxes
Less: Preferred dividends Less: Preferred dividends
Earnings available for common stock 5,279 Earnings available for common stock

Common shares outstanding (000's) 1,000 Common shares outstanding (000's)

Earnings per share (EPS) $ 5.28 Earnings per share (EPS)
Less: Common dividends per share $ 2.50 Less: Common dividends per share
Retained earnings per share $ 2.78 Retained earnings per share
Retained earnings in total 2,779 Retained earnings in total
Original EPS
Change in EPS
Percent change in EPS

ABC CORPORATION ABC CORPORATION

Earnings per Share with New Preferred Stock Issue ($000's) Earnings per Share with New Common Stoc
Before New With New
 Product Product
Earnings before interest and taxes (EBIT) 7,999 9,999 Earnings before interest and taxes (EBIT)
Less: Interest charges on long-term debt 0 0 Less: Interest charges on long-term debt
Earnings before income taxes 7,999 9,999 Earnings before income taxes
Less: Incomes taxes at 34% 2,720 3,400 Less: Incomes taxes at 34%
Earnings after income taxes 5,279 6,599 Earnings after income taxes
Less: Preferred dividends 1,250 1,250 Less: Preferred dividends
Earnings available for common stock 4,029 5,349 Earnings available for common stock

Common shares outstanding (000's) 1,000 1,000 Common shares outstanding (000's)
Earnings per share (EPS) $ 4.03 $ 5.35 Earnings per share (EPS)
Less: Common dividends per share $ 2.50 $ 2.50 Less: Common dividends per share
Retained earnings per share $ 1.53 $ 2.85 Retained earnings per share
Retained earnings in total 1,529 2,849 Retained earnings in total
Original EPS $ 5.28 $ 5.28 Original EPS
Change in EPS -$ 1.25 $ 0.07 Change in EPS
Percent change in EPS -23.7% 1.3% Percent change in EPS
 EPS Calculation with New Bond Issue
EPS Calculation with New Preferred Stock Issue
EPS Calculation with New Common Stock Issue

ABC CORPORATION: Range of EBIT and EPS Chart

EPS = [(E - i)(1 - t) - d]/s

E = EBIT
5.28 i = interest $
t = tax rate
4.53 d = preferred dividends $
s = shares outstanding

2.75

2.50
Original E(1-t)/s
Bonds
Preferred (E-i)(1-t)/s
Common (E(1-t)-d)/s
Orig. EPS
Div/Sh E(1-t)/s

2.00 4.00 6.00

EBIT ($millions) 8.00 10.00 12.00
Share with New Bond Issue ($000's)
Before New With New
Product Product
terest and taxes (EBIT) 7,999 9,999
harges on long-term debt 1,150 1,150
6,849 8,849
2,329 3,009
4,520 5,840
- 0
for common stock 4,520 5,840

utstanding (000's) 1,000 1,000

$ 4.52 $ 5.84
dividends per share $ 2.50 $ 2.50
$ 2.02 $ 3.34
2,020 3,340
$ 5.28 $ 5.28
-$ 0.76 $ 0.56
-14.4% 10.6%

Share with New Common Stock Issue ($000's)

Before New With New
 Product Product
terest and taxes (EBIT) 7,999 9,999
harges on long-term debt 0 0
7,999 9,999
2,720 3,400
5,279 6,599
0 0
for common stock 5,279 6,599

utstanding (000's) 1,275 1,275

$ 4.14 $ 5.18
dividends per share $ 2.50 $ 2.50
$ 1.64 $ 2.68
2,092 3,412
$ 5.28 $ 5.28
-$ 1.14 -$ 0.10
-21.6% -2.0%

© Modernsoft Inc., 1999

All rights reserved
E - i)(1 - t) - d]/s

rred dividends $
es outstanding

BREAKEVEN data source for graphing

EPS=
EBIT 0.00 5.32 8.76 11.00
Original 0.00 3.51 5.78 7.26
Bonds -0.76 2.75 5.02 6.50
Preferred -1.25 2.26 4.53 6.01
Common 0.00 2.75 4.53 5.69
Orig. EPS $ 5.28 $ 5.28 $ 5.28 $ 5.28
Div/Sh $ 2.50 $ 2.50 $ 2.50 $ 2.50
Chapter10-11: Total Company Valuation

Totals
Key Assumptions Year: 0 1 2 3 4 5 6 7 8 9

EBIT x (1 - t) 10,000 12,000 13,000 12,000 13,500 12,500

Add: write-offs and non-cash items 6,500 7,000 8,600 9,300 9,900 11,900
Less: net new working capital -1,200 -1,400 -1,800 500 -1,600 -2,000
Less: net new capital investments -8,000 -15,000 -10,200 -11,000 -22,000 -10,000
Add/less: significant non-operating items 500 -300 400 1,200 -800 0
Free cash flow 7,800 2,300 10,000 12,000 -1,000 12,400 0 0 0
Ongoing value 187,500
Present value factors @ 12.0% 0.893 0.797 0.712 0.636 0.567 0.507 0.452 0.404 0.361
Present value of free cash flow 6,964 1,834 7,118 7,626 -567 6,282 0 0 0
Present value of ongoing value 0 0 0 0 0 94,993 0 0 0
Cumulative present value 124,250 6,964 8,798 15,916 23,542 22,974 124,250 124,250 124,250 124,250

Firm value 124,250

Non-operating assets 5,700
Total value 129,950
Value of long-term debt outstanding 40,000
Value of company equity 89,950
Chapter 11: An Illustration of Economic Profit, CFROI, and Earnings Measures ($000's)

Key Assumptions The Divergence of Accounting and Cash Flow Measures (gra
Working capital - initial 2,000
Fixed investment - initial 10,000 Economic Profit Analysis
Economic life 8 Cash Flow Return on Investment Analysis
Cost of capital 10.0% Other Measures
Net present value factor 10.0%
NOPAT 824.4 Note: The simplified example here shows a company earning exa
Capital amortization 874.4 In other words, the net present value of Economic profits when dis
Depreciation effect 1,250 capital equals zero; likewise the DCF-ROI or IRR equals the Cost

Economic Profit Analysis 0 1 2 3 4 5

Book value of fixed investment (beg.) 10,000 8,750 7,500 6,250 5,000
Working capital 2,000 2,000 2,000 2,000 2,000
Total book value 12,000 10,750 9,500 8,250 7,000
Cost of capital 10.0% 10.0% 10.0% 10.0% 10.0%
Capital charge @ 10% 1,200 1,075 950 825 700
NOPAT 824 824 824 824 824
Economic profit (EVA) -376 -251 -126 -1 124
Present value factor @ 10% 1.000 0.909 0.826 0.751 0.683 0.621
Net PV of economic profits @ 10% 0 -341 -207 -94 0 77

Cash Flow Return on Investment Analysis 1 2 3 4 5

NOPAT 824 824 824 824 824
Add back depreciation effect 1,250 1,250 1,250 1,250 1,250
Operating cash flow generated 2,074 2,074 2,074 2,074 2,074

Initial investment 12,000 12,000 12,000 12,000 12,000 12,000

Cost of capital 10.0% 10.0% 10.0% 10.0% 10.0%
Capital charge @ 10% 1,200 1,200 1,200 1,200 1,200
Capital amortization @ 10% 874 874 874 874 874
Terminal recovery of working capital 0 0 0 0 0
Total cash flow requried -12,000 2,074 2,074 2,074 2,074 2,074
Present value of future cash flows 12,000 1,886 1,714 1,559 1,417 1,288
Net present value @ 10% 0

Other Measures 0 1 2 3 4 5
ROE 6.9% 7.7% 8.7% 10.0% 11.8%
ROCE / RONA 6.9% 7.7% 8.7% 10.0% 11.8%
ROGI 17.3% 17.3% 17.3% 17.3% 17.3%
CFROI 10.0% 10.0% 10.0% 10.0% 10.0%

Project/business IRR The Divergence of Accounting and Cash Flow Meas

Cost of capital 30.0%
Accounting ROA
Rate of return

Accounting ROGI
25.0%

20.0%

15.0%
 Project/business IRR The Divergence of Accounting and Cash Flow Meas
Cost of capital 30.0%
Accounting ROA

Rate of return
Accounting ROGI
25.0%

20.0%

15.0%

10.0%

5.0%6.9%

0.0%
1 2 3 4 Year 5 6

Graph Data
1 2 3 4 5 6
Project/business IRR 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%
Cost of capital 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%
Accounting ROA 6.9% 7.7% 8.7% 10.0% 11.8% 14.3%
Accounting ROGI 17.3% 17.3% 17.3% 17.3% 17.3% 17.3%
d Cash Flow Measures (graph)

hows a company earning exactly its cost of capital.

e of Economic profits when discounted at the Cost of
F-ROI or IRR equals the Cost of capital.

6 7 8 9 10 11 12 13 14 15
3,750 2,500 1,250 0 0 0 0 0 0 0
2,000 2,000 2,000 0 0 0 0 0 0 0
5,750 4,500 3,250 0 0 0 0 0 0 0
10.0% 10.0% 10.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
575 450 325 0 0 0 0 0 0 0
824 824 824 0 0 0 0 0 0 0
249 374 499 0 0 0 0 0 0 0
0.564 0.513 0.467 - - - - - - -
141 192 233 0 0 0 0 0 0 0

6 7 8 9 10 11 12 13 14 15
824 824 824 0 0 0 0 0 0 0
1,250 1,250 1,250 0 0 0 0 0 0 0
2,074 2,074 2,074 0 0 0 0 0 0 0

12,000 12,000 12,000 0 0 0 0 0 0 0

10.0% 10.0% 10.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
1,200 1,200 1,200 0 0 0 0 0 0 0
874 874 874 0 0 0 0 0 0 0
0 0 2,000 0 0 0 0 0 0 0
2,074 2,074 4,074 0 0 0 0 0 0 0
1,171 1,065 1,901 0 0 0 0 0 0 0

6 7 8 9 10 11 12 13 14 15
14.3% 18.3% 25.4% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
14.3% 18.3% 25.4% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
17.3% 17.3% 17.3% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
10.0% 10.0% 10.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

unting and Cash Flow Measures

25.4%

17.3%
unting and Cash Flow Measures

25.4%

17.3%

10.0%

10.0%

Year 5 6 7 8

© Modernsoft Inc., 1999

All rights reserved

7 8
10.0% 10.0%
10.0% 10.0%
18.3% 25.4%
17.3% 17.3%
WELCOME to Interactive Templates for TFA
These templates are intended to be used as a companion to TECHNIQUES OF FINANCIAL ANALYSIS (TFA),
by Dr. Erich Helfert, 10th Millennium Edition.

Every template is taken from specific examples/exercises in the text book. References to the book are
found on the Main Menu. As such, these templates should be used along side the book which explains
the relevance and design of each exercise.

Insofar as TFA's emphasis is around the concept that any business is essentially a financial system of cash
flows ... these templates allow the user to examine the interrelationships between investment,
operating, and financing variables within the financial system. Collectively, they should greatly enhance
your understanding of the concepts presented in TFA.

Below is a quick reference on How to Use Interactive Templates for TFA and a few
Tips and Tricks.

HOW TO USE Interactive Templates for TFA

These templates are Microsoft Excel templates (using Excel 97). It is assumed the user has a basic
understanding of using Excel. All templates follow the schematic shown in the example below.

Sample Template START HERE Click to view

(Try me!) graph / table

Click here to access MAIN MENU. From there you can go

to any worksheet by simply clicking on the appropriate
Key Assumptions button. Alternatively, click on tabs below at any time for
Sales 500.0 direct access to any worksheet / template.

Costs as percent of sales 40.0%

ALL inputs are made in the Assumptions table found in the
upper left part of each worksheet.
Income Statement
Sales Sales 500.0 To display comments, rest pointer over cell with red
Costs Costs 200.0 comment indicator in upper-right corner of cell.
Income Income 300.0
Inputs are only allowed in white cells which are unlocked.
The remainder of the worksheet is protected and will NOT
allow any changes.

600.0 Change values here and observe the results in the tables
and charts.
500.0

400.0
Sales
300.0 Costs
Results are displayed in separate tables. Every table is
Income taken directly from TFA. All calculated terms are displayed
200.0
in shaded cells (which are locked and protected).
100.0

Graphs and charts, also taken directly from TFA, are

dynamically linked to the inputs and results. Change the
inputs and observe the changes on the graph / chart.

Click on Home button to return to top of template.

TIPS and TRICKS

VIEWING Zoom in/out with different magnifications to optimize view for your screen.
Use split screen and freeze panes commands to view multiple panels.
Open new window to view multiple windows simultaneously.

SENSITIVITY To quickly view the results of changing one input, first enter new value in Assumptions
ANALYSIS section for input. Go to table / chart / graph to observe resultant change. Now use the
undo and redo buttons on your toolbar, alternatively, to see before and after impact.

MODIFYING If you're an experienced Excel user, if you wish you can easily modify and customize
TEMPLATES the template(s) for your own use. Simply unprotect the worksheet. However, be
careful not to violate the financial integrity of the interrelationships. (P.S. If you
mess up, don't worry. Simply retrieve the original templates from your program disk.)

Note: Some of the graphics may not appear correctly on your screen. This is NOT a problem
with your computer/screen or the template. These templates are optimized for
a screen resolution of 1024 x 768.