Chapter 17 APPENDIXThe Balance Sheet and Statement of Cash by kxc12291

VIEWS: 4 PAGES: 2

									588        Part 7 Financial Planning and Forecasting


  Chapter 17 APPENDIX                The Balance Sheet and Statement of Cash Flows

                        The information we have calculated so far can be used to project KMS’s balance sheet
                        and statement of cash flows through 2012. While these statements are not critical for
                        our valuation of the expansion, they often prove helpful in providing a more complete
                        picture of how a firm will grow during the forecast period. These statements for KMS are
                        shown in the spreadsheets in Table 17.17 and Table 17.18.
                            The balance sheet (Table 17.17) continues the work we started in Table 17.10.
                        Current assets and liabilities come from the net working capital spreadsheet (Table 17.9).
                        The inventory entry on the balance sheet includes both raw materials and finished
                        goods. Property, plant, and equipment information comes from the forecasted capital
                        expenditure spreadsheet (Table 17.6), and the debt comes from Table 17.7.


      TABLE 17.17             1   Year                              2007     2008     2009     2010     2011     2012
                              2   Balance Sheets ($000s)
  Pro Forma Balance           3   Assets
  Sheet for KMS,              4   Cash and Cash Equivalents         11,982  14,139 16,520 19,167 22,107 25,367
  2007–2012                   5   Accounts Receivable               14,229  16,790 19,617 22,761 26,252 30,124
                              6   Inventories                       14,978  17,674 20,649 23,959 27,633 31,709
                              7   Total Current Assets              41,189  48,603 56,786 65,886 75,992 87,201
                              8   Property, Plant, and Equipment    49,427  66,984 67,486 67,937 68,344 68,709
                              9   Total Assets                      90,616 115,587 124,272 133,823 144,335 155,910
                             10
                             11   Liabilities
                             12   Accounts Payable                  11,982   14,139   16,520   19,167   22,107   25,367
                             13   Debt                               4,500   24,500   24,500   24,500   24,500   24,500
                             14   Total Liabilities                 16,482   38,639   41,020   43,667   46,607   49,867
                             15
                             16   Stockholders’ Equity
                             17   Starting Stockholders’ Equity     69,275  74,134 76,948 83,252 90,156 97,729
                             18   Net Income                         6,940   7,600   8,807 11,141 13,739 16,627
                             19   Dividends                          2,082   4,786   2,503   4,237   6,167   8,313
                             20   Stockholders’ Equity              74,134  76,948 83,252 90,156 97,729 106,042
                             21   Total Liabilities and Equity      90,616 115,587 124,272 133,823 144,335 155,910




      TABLE 17.18             1   Year                               2007    2008     2009     2010     2011     2012
                              2   Statement of Cash Flows ($000s)
  Pro Forma Statement         3   Net Income                                  7,600    8,807   11,141   13,739   16,627
  of Cash Flows for           4   Depreciation                                7,443    7,498    7,549    7,594    7,634
  KMS, 2008–2012              5   Changes in Working Capital
                              6   Accounts Receivable                         2,561    2,827    3,144    3,491    3,872
                              7   Inventory                                   2,696    2,976    3,309    3,675    4,076
                              8   Accounts Payable                            2,157    2,381    2,647    2,940    3,261
                              9   Cash from Operating Activities             11,942   12,884   14,884   17,107   19,574
                             10   Capital Expenditures                       25,000    8,000    8,000    8,000    8,000
                             11   Other Investment                               —        —        —        —        —
                             12   Cash from Investing Activities             25,000    8,000    8,000    8,000    8,000
                             13   Net Borrowing                              20,000       —        —        —        —
                             14   Dividends                                   4,786    2,503    4,237    6,167    8,313
                             15   Cash from Financing Activities             15,214    2,503    4,237    6,167    8,313
                             16
                             17   Change in Cash (9 12 15)                    2,157    2,381    2,647    2,940    3,261
                        Chapter 17 Financial Modeling and Pro Forma Analysis         589

     KMS’s book value of equity will steadily grow as it expands and remains profitable,
only paying out a portion of its net income each year. Its debt will jump from $4500 to
$24,500 in 2008 when it finances its expansion. KMS’s other liabilities—accounts
payable—will grow steadily with sales. KMS’s book debt-equity ratio will jump from
4500/74,134 = 6% in 2007 to 24,500/76,948 = 32% in 2008, and then will steadily
decline to 23% by 2012.
     The statement of cash flows in Table 17.18 starts with net income. Cash from oper-
ating activities includes depreciation as well as changes to working capital items
(other than cash) from Table 17.9. Cash from investing activities includes the capital
expenditures in Table 17.6. Cash from financing activities includes net borrowing from
Table 17.7, and dividends are equal to free cash flows to equity because we assume
KMS pays out all excess cash. We can compute FCF to equity from Table 17.12 using
the following equation:
                  FCF to Equity = FCF of the Firm + Net Borrowing
                                    - After-tax Interest Expense                 (17.12)
    KMS is not planning to raise any additional equity financing, so there are no capital
contributions on the cash flow statement. As a final check on the calculations, note that
the change in the minimum cash balance shown on the balance sheet (Table 17.17). For
example, in 2008, the change in cash and cash equivalents is 2157, which is the amount
by which 2008 cash exceeds 2007 cash on the balance sheet.

								
To top