a) Compute a comprehensive set of financial ratios for High Country from Exhibits 4 and 5. Put these calculations in the Exhibit 4 tab under the Income Statements.
b) The case provides a set of forecast assumptions for High Country. Append these hard-coded assumptions for 2012-2015 to the right of the historical ratios computed in part a) in the Exhibit 4 tab. You will add four columns, one for each forecast year.
c) Forecast Free Cash Flow for High Country for 2012-2015. Put these forecasts in Exhibit 5 below the balance sheets. You will need to forecast several balance sheet accounts (but not all of them) in order to forecast FCF. Append these balance sheet forecasts in Exhibit 5.
| Income Statement | 6/30/2012 | 6/30/2013 | 6/30/2014 | 6/30/2015 |
| Net Sales | 18,793 | 19,921 | 20,917 | 21,921 |
| Cost of goods sold | 11,558 | 11,654 | 12,237 | 12,824 |
| Gross profit Margin | 7,235 | 8,267 | 8,681 | 9,097 |
| R&D expanses | 188 | 319 | 335 | 351 |
| SG& A Eupnoea | 5,657 | 6,275 | 6,589 | 6,905 |
| Earnings before Interest and Taxes | 1,391 | 1,673 | 1,757 | 1,841 |
| Interest Expanses | 80 | 75 | 32 | 5 |
| Earnings before Taxes | 1,311 | 1,599 | 1,725 | 1,837 |
| Income tax | 354 | 432 | 466 | 496 |
| Net Income | 957 | 1,167 | 1,259 | 1,341 |
| Dividend Paid | – | – | – | – |
Balance Sheet: liabilities
‘For the liabilities accounts, accounts payable would equal 30 days of COGS, and accrued expenses would be 1.66% of sales.’
Cash = (20/365)* operating expenses. For the last number, we subtract a
Accounts receivables = (75/365)* net sales (exhibit 5).
Inventories = COGS (exhibit 4)/4.
Net property and equipment = net sales (exhibit 4)/4.
Prepaid expenses = 0.012*COGS (exhibit 4).
Other long-term assets = 0.045*net sales (exhibit 4).
| Income Statement | 6/30/2012 | 6/30/2013 | 6/30/2014 | 6/30/2015 |
| Net Sales | 18,793 | 19,921 | 20,917 | 21,921 |
| Cost of goods sold | 11,558 | 11,654 | 12,237 | 12,824 |
| Gross profit Margin | 7,235 | 8,267 | 8,681 | 9,097 |
| R&D expanses | 188 | 319 | 335 | 351 |
| SG& A Expanse | 5,657 | 6,275 | 6,589 | 6,905 |
| Earnings before Interest and Taxes | 1,391 | 1,673 | 1,757 | 1,841 |
| Interest Expanses | 80 | 75 | 32 | 5 |
| Earnings before Taxes | 1,311 | 1,599 | 1,725 | 1,837 |
| Income tax | 354 | 432 | 466 | 496 |
| Net Income | 957 | 1,167 | 1,259 | 1,341 |
| Dividend Paid | – | – | – | – |
| Assets | 6/30/2012 | 6/30/2013 | 6/30/2014 | 6/30/2015 |
| Cash | 725 | 769 | 808 | 1422 |
| Accounts Receivable | 3682 | 4093 | 4298 | 4504 |
| Inventories | 2889 | 2913 | 3059 | 3206 |
| Prepaid Expanses | 226 | 239 | 251 | 263 |
| Total Current Assets | 7702 | 8015 | 8416 | 9395 |
| Net Property and Equipment | 4698 | 4980 | 5229 | 5480 |
| Other Long term Assets | 846 | 896 | 941 | 986 |
| Total Assets | 13246 | 13892 | 14587 | 15862 |
| Liability & owner Equity | ||||
| Bank Notes payable | 130 | 76 | 13 | 0 |
| Accounts Payable | 950 | 958 | 1006 | 1054 |
| Current portion of long-term Debt | 0 | 0 | 0 | 0 |
| Accrued Expanses | 312 | 331 | 347 | 365 |
| Total Current Liability | 2565 | 2044 | 1479 | 1418 |
| Long term Debt | 0 | 0 | 0 | 0 |
| total Liability | 2565 | 2044 | 1479 | 1418 |
| Common stock | 4584 | 4584 | 4584 | 4584 |
| Retained Earning | 6097 | 7264 | 8523 | 9864 |
| total Share holders’ Equity | 10681 | 11848 | 13107 | 14448 |
| Total Liability and Net Worth | 13246 | 13892 | 14587 | 15866 |
– Accounts payable = (30/365)* COGS (exhibit 4).
– Current portion of long-term debt and long-term debt = 0. There is no loan.
– Accrued expenses = 0.0166*net sales (exhibit 4).
– Common stock does not change during the years.
– Retained earnings = retained earnings last year + net income this year (exhibit 4)..
– Operating expense = R&D expense (exhibit 4) + SG&D expense (exhibit 4) +COGS (exhibit 4)*part COGS in operating expense. From 2012 to 2015, we use the average of the previous 4 years.
– Debt = bank notes payable + current portion of long-term debt + long-term debt
| Free Cash Flow Calculation | ||||||
| Year | 6/30/2010 | 6/30/2011 | 6/30/2012 | 6/30/2013 | 6/30/2014 | 6/30/2015 |
| Profit After Tax | 825 | 957 | 1167 | 1259 | 1341 | |
| ,-Change In working Capitapl | -246 | -365 | -834 | -965 | -1041 | |
| ,-Change In Fixed assets at cost | -151 | -274 | -282 | -249 | -251 | |
| Addback Depriciation | 385 | 409 | 433 | 455 | 477 | |
| Addback after Tax interest on Debt | 46 | 58 | 54 | 23 | 3 | |
| Addback interespaymentt | 63 | 80 | 75 | 32 | 5 | |
| Subtarct tax shield in interest payment on debt |
-17 | -22 | -20 | -9 | -1 | |
| ,- chages in other Assets | -27 | 319 | -51 | -45 | -45 | |
| Free Cash Flow (extended) | 833 | 467 | 488 | 478 | 484 | |
| Year | 6/30/2010 | 6/30/2011 | 6/30/2012 | 6/30/2013 | 6/30/2014 | 6/30/2015 |
| Working Capital (CA-CAL) | 4528 | 4773 | 5137 | 5971 | 6937 | 5978 |
| Fixed assets at cost | 4273 | 4424 | 4698 | 4980 | 5229 | 5480 |
| Other Assets | 500 | 527 | 846 | 896 | 941 | 986 |
