Historical and Projected Financia Ralph Lauren Corp. Period Income Statement Revenues: Total revenues Cost of goods sold Gross profit Operating Expenses: Selling, general and administrative Equity in earnings Non-recurring items Unreconciled Amt. Interest expense, net Pre-tax income Income taxes Net income Balance Sheet Assets Cash and equivalents Short-term investments Accounts receivable, net Inventories Other current assets Total current assets Fixed assets (net) Intangibles Goodwill Long-term investments Other fixed assets Total assets Accounts payable Accrued expenses Short-term debt Other current liabilities Total current liabilities Long-term debt Other liabilities 2012 2013 2014 2015 6.860 2.862 3.998 6.945 2.789 4.156 7.450 3.140 4.310 7.620 3.242 4.378 2.916 (9) 12 33 13 1.015 334 681 2.971 (10) 12 58 16 1.089 339 750 3.142 (9) 19 27 17 1.096 320 776 3.301 (11) 17 51 11 987 285 702 672 516 547 842 324 2.900 884 359 1.004 100 130 5.416 974 325 458 896 310 2.963 932 328 968 81 124 5.418 797 488 588 1.020 436 3.329 1.322 299 964 500 644 655 1.042 483 3.324 1.436 267 903 135 6.088 131 6.106 181 147 664 267 43 1.121 203 690 0 77 970 298 786 210 715 234 27 1.186 298 731 0 766 946 274 543 512 Total liabilities Additional Fund Needed - Cumulative (Surplus) Shareholders' equity Common Stock Paid-in capital Retained earnings Treasury stock Total Liabilities and Equity 1.764 1.633 2.054 2.215 0 0 0 0 3.653 198 1.624 4.042 (2.212) 3.785 95 1.752 4.647 (2.709) 4.034 115 1.979 5.257 (3.317) 3.891 (164) 2.117 5.787 (3.849) 6.088 6.106 5.416 5.418 The first step in computing FCF is to restate do a Pen That means to break the BS down into Net operating stakeholder claims. Note that assets are treated as a negative (since they and equity are treated as positive (since they represe Total assets Less non operating assets Marketable securities (short term Investment) Operating liabilities Accounts payable Accruals Short term debt Other Current liabilities Other non current liabilities Net operating assets Non operating assets Book value of the firm Additional Fund Needed - Cumulative (Surplus) Long term debt Common stock Paid In capital Retained earnings Accumulated other(treasury sock) (5.416) 516 (5.418) 325 (6.088) 488 (6.106) 644 181 0 0 766 543 (3.411) 147 664 267 43 512 (3.460) 203 690 0 77 786 (3.844) 210 715 234 27 731 (3.545) (516) (325) (488) (644) (3.927) (3.785) (4.332) (4.189) 0 0 0 0 274 198 1.624 4.042 (2.212) 0 95 1.752 4.647 (2.709) 298 115 1.979 5.257 (3.317) 298 (164) 2.117 5.787 (3.849) Stakeholder claims Total Changes 3.927 3.785 4.332 4.189 0 0 0 0 The next step is to compute changes by subtracting o (2) (670) (18) (191) 163 156 (34) 664 267 (723) (31) (49) 56 26 (267) 34 274 (384) 7 25 234 (50) (55) 299 Non operating assets 191 (163) (156) Book value of the firm 142 (547) 143 0 (274) (103) 128 605 (497) (142) 0 298 20 227 610 (608) 547 0 0 (279) 138 530 (532) (143) (0) 0 0 Total assets Less non operating assets Marketable securities (short term Investment) Operating liabilities Accounts payable Accruals Short term debt Other Current liabilities Other non current liabilities Net operating assets Additional Fund Needed Long term debt Common stock Paid In capital Retained earnings Accumulated other(treasury sock) Stakeholder claims Total Computation of FCF The final step is to use those change numbers to com Net Income Add back interest expense Less tax on Interest expense NOPAT (Additions to Net operating assets) FCF 750 16 (6) 760 (49) 711 776 17 (7) 786 (384) 402 702 11 (4) 709 299 1.008 Additional Fund Needed (Surplus) (Pay off for long term debt) 0 (274) 0 298 0 0 Additional common stock isssued/(Shares repurchased) Additional Paid in capital (Dividends paid) (Interest paid net off tax) (Increase) in non-operating assets Increase/(Decrease) in accumulated other Dispositions of FCF Total (103) 128 (145) (10) 191 20 227 (166) (10) (163) (279) 138 (172) (7) (156) (497) (711) (608) (402) (532) (1.008) 0 0 0 Positive means source of cash and negative represen ed Financial Statements uren Corp. 2016 2017 2018 2019 2020 2021 7.405 3.218 4.187 7.553 3.282 4.271 7.704 3.348 4.356 7.858 3.415 4.443 8.015 3.483 4.532 8.176 3.553 4.623 3.389 (11) 192 28 15 552 156 396 3.457 (11) 0 3.526 (11) 0 3.596 (11) 0 3.668 (11) 0 3.742 (11) 0 15 788 315 473 15 804 322 483 15 821 328 493 15 838 335 503 15 855 342 513 456 629 517 1.125 326 3.053 1.583 244 918 296 6.213 465 629 527 1.148 333 3.101 1.615 249 936 0 302 6.203 474 629 538 1.170 339 3.164 1.647 254 955 0 308 6.327 484 629 549 1.194 346 3.227 1.680 259 974 0 314 6.454 494 629 560 1.218 353 3.291 1.713 264 994 0 320 6.583 503 629 571 1.242 360 3.357 1.748 269 1.014 0 327 6.715 151 898 116 33 1.198 597 674 154 916 116 34 1.220 597 687 157 934 116 34 1.242 597 701 160 953 116 35 1.264 597 715 163 972 116 36 1.287 597 730 167 991 116 36 1.311 597 744 2.469 2.504 2.540 2.576 2.614 2.652 0 (350) (576) (810) (1.053) (1.305) 3.744 (180) 2.258 6.015 (4.349) 4.049 (180) 2.258 6.320 (4.349) 4.363 (180) 2.258 6.634 (4.349) 4.688 (180) 2.258 6.959 (4.349) 5.022 (180) 2.258 7.293 (4.349) 5.368 (180) 2.258 7.639 (4.349) 6.213 6.203 6.327 6.454 6.583 6.715 (6.583) (6.715) o restate do a Penman restatement of the Balance Sheet nto Net operating assets, non-operating assets, and gative (since they represent a use of cash), and liabilities since they represent a source of cash). (6.213) 629 (6.203) 629 (6.327) 629 (6.454) 629 629 629 151 898 116 33 674 (3.712) 154 916 116 34 687 (3.667) 157 934 116 34 701 (3.755) 160 953 116 35 715 (3.845) 163 972 116 36 730 (3.937) 167 991 116 36 744 (4.031) (629) (629) (629) (629) (629) (629) (4.341) (4.296) (4.384) (4.474) (4.566) (4.660) (350) 597 (180) 2.258 6.320 (4.349) (576) 597 (180) 2.258 6.634 (4.349) (810) 597 (180) 2.258 6.959 (4.349) (1.053) 597 (180) 2.258 7.293 (4.349) (1.305) 597 (180) 2.258 7.639 (4.349) 0 597 (180) 2.258 6.015 (4.349) 4.341 4.296 4.384 4.474 4.566 4.660 0 0 0 0 0 0 s by subtracting out the balances from the previous year. (107) 10 (124) (127) (129) (132) (15) 0 0 0 0 0 (59) 183 (118) 6 (57) (167) 3 18 0 1 13 45 3 18 0 1 14 (88) 3 19 0 1 14 (90) 3 19 0 1 14 (92) 3 19 0 1 15 (94) 15 0 0 0 0 0 (152) 45 (88) (90) (92) (94) 0 299 (16) 141 228 (500) 152 (350) 0 0 0 305 0 (45) (226) 0 0 0 315 0 88 (234) 0 0 0 325 0 90 (243) 0 0 0 335 0 92 (251) 0 0 0 345 0 94 0 0 (0) 0 0 0 e numbers to compute FCF and the Disposition of FCF. 396 15 (6) 405 (167) 238 473 15 (6) 482 45 527 483 15 (6) 492 (88) 403 493 15 (6) 502 (90) 411 503 15 (6) 512 (92) 420 513 15 (6) 522 (94) 428 0 299 (350) 0 (226) 0 (234) 0 (243) 0 (251) 0 (16) 141 (168) (9) 15 0 0 (168) (9) 0 0 0 (168) (9) 0 0 0 (168) (9) 0 0 0 (168) (9) 0 0 0 (168) (9) 0 (500) (238) 0 (527) 0 (403) 0 (411) 0 (420) 0 (428) 0 0 (0) 0 negative represents a disposition, or distribution of cash. 0 (0) https://finance.yahoo.com/quote/RL?ltr=1 (Data has been taken from this site) Calculation of WACC Beta Risk-free Rate Market risk premium Cost of Equity Weight of Equity 0,62 0,02 0,08 0,0696 0,8827 Cost of debt Weight of debt Tax Rate 0,06144 Hence, WACC 0,03 0,1173 (Weights were based on book values, and shou 0,4 (We have assumed 40% tax all over) 0,0021107 0,06355 Calculation of Horizon Value FCF 2021 Growth FCF 2022 WACC Growth HV 2021 428,39 0,02 (We have assumed 2% growth all over) 436,957 0,06355 0,02 10033,6 Calculation of Value of the Firm Year FCF PViF 2017 2018 2019 2020 2021 HV 527 403 411 420 428 10034 0,940 0,884 0,831 0,782 0,735 0,735 Total value of the firm Less Debt Value of Equity No. of Shares Value per Share Market value per share PVCF 495 M 357 342 328 315 7.373 9.210 (713) 8.497 48 176,40 111,92 M M M M book values, and should have been based on market values) Case study questions: Items to be included in spreadsheet: (1 ) Include 5 years of historical balance sheets and income statements (1a) All spreadsheet data should be easily read and easily navigated. It should all be on one spreadsheet, so the reader need not travel back and forth between numerous sources. (1b) On spreadsheets, all cells should contain their formulas, so the reader can see what items are included in a total. (1c) All spreadsheet totals should add up. (1d) Retained earning should reconcile from one year to the next. In other words: beginning retained earnings plus net income minus dividends should equal ending retained earnings. (2) Project 5 years of future balance sheets and income statements (2a) In your balance sheets, separate out operating cash from excess cash and cash equivalents. (2b) In your projected balance sheets, assume no change in excess cash. (2c) Consider this report a first pass; and assume that there is no change in long term debt obligations, notes payable, common stock. That will make your free cash flow computation easier. (2d) If you are projecting a change in deferred tax assets or deferred tax liabilities, explain why you are projecting that change. (Remember that, in the long run, deferred tax assets and deferred tax liabilities zero out, since they are all based upon timing differences which will reverse.) (2e) If you are projecting a change in non-operating assets explain why. (2f) To make your projected liabilities and equity equal to your projected assets, include a line item between your liability section and equity section called Flexible Financing. Generally, this will represent cumulative additional funds needed AFN. And if it is negative, it will generally indicate cumulative free cash flow. Use the Flexible financing account as a balancing account. (2g) Assume no change in Other Accumulated Comprehensive Income. This account appears in the equity section of the balance sheet and represents the unrealized gain or loss on marketable securities and foreign exchange. It is only a temporary account and should zero out over time. (3a) Compute free cash flow for all years. (3b) Show the disposition of free cash flow in all years, both historical and projected. Items to be included in final report. Respond to each of these questions in the final report, repeating the question number and question before responding. (4a) In the historical period, were there any acquisitions? And if so, were they stock for stock, assets for stock, etc.? (4b) Did another firm acquire shares in your company in the historical period? And if so, were they stock for stock, or assets for stock, etc.? (4c) If the firm is growing, is its growth real, or is it merely growth through acquisition? (5a) Justify your revenue projections and your gross margin assumptions. (5b) Explain which costs are fixed and which costs are variable and which costs have a fixed and variable component. If some of your costs are fixed, then there will be economies of scale, and your profit margins should improve. (5c) If the provision for income tax differs significantly from 40 percent, explain why the difference. (6) Analyze the firm in terms of Porters Five Forces: In other words outline to what extent the firm’s growth and profitability might be limited by (i) the power of its consumers, (ii) competition from rival producers, (iii) potential competition from new entrants into its market, (iv) the power of its input suppliers, or (v) the existence of substitute goods. (7) If your firm is in the technology sector, explain the firm’s position in its industry. Is it a market leader? And if so, is it a market leader based upon its technological advantage? And what must the firm do to remain a leader in its industry? (8) Are there any legal problems, or outstanding lawsuits pending, or lawsuits which have recently been settled? Explain. And explain what impact that might have on future results. (9) Do a ratio analysis to compare your firm with 3 firms in its industry, but only report key ratios, which may include PE ratio, ROE, ROA, net profit margin, gross profit margin. A comparative Du Pont analysis might be helpful. But do not report other ratios, unless there is a significant difference. If your company is trading at a significantly higher PE ration than other firms in its industry, is there an opportunity to make acquisitions on a stock for stock basis? Identify potential acquisition targets. (9a) Ratio comparisons should be presented in tables which are self explanatory. (9b) Ratio comparisons should not be presented in narrative form. (10) If the firm is facing possible insolvency, explain. If there is a possibility of insolvency, you may wish to compute break even point. (11) If your Flexible Financing account has a large positive balance, indicating AFN, outline your plan for how the company will arrange outside financing. Will it borrow on a short term basis, issue long term debt, or sell additional shares? And do you estimate any problem with arranging that necessary financing? (12) If your Flexible Financing account has a large negative balance, indicating FCF, how will you use that FCF? Will you begin to pay dividends? Buy back stock? Use the FCF for acquisitions? (13) Place a value on the stock of your firm and support your computation. (13a) Any computations, such as valuation, should be done in the form of tables which are easy to read. Use the same format as the valuation tables in PowerPoint lecture slides. Tables should be self-explanatory. In other words, the reader should not be forced to search the document for missing information. Tables should clearly state your assumptions. (13b) A separate table should be presented to compute Horizon value. (13c) And a second table should be presented incorporating the FCF of years 1-5, along with the Horizon value, to arrive at valuation. (13d) Your valuation should approximate the current market value of the stock. If it does not approximate the current market value of the stock, then you need to rework your projected cash flows and Horizon values, in order to come up with a reasonable valuation. (14) If you quote any analyst or news source, show your sources. Do not plagiarize, as plagiarism is a serious breach of the academic honor code. Historical and Projected FedEx C Period (May. 31) 2014 Income Statement Revenues 45,567 Operating Expenses: Salaries and employee benefits 16,171 Purchased transportation 8,011 Rentals and landing fees 2,622 Depreciation and amortization 2,587 Fuel 4,557 Maintenance and repairs 1,862 Goodwill and other asset impairment charges Retirement plans mark-to-market adjustment 15.00 Other 5,927 Total Operating Expense Operating Income 41,752 3,815 Other Income (Expenses): Interest expense (160) Interest income 18 Other, net (15) Other Income (Expenses): (157) Income Before Income Taxes 3,658 Provision For Income Taxes (Benefit) 1,334 Net Income 2324 Balance Sheet Cash and cash equivalents Receivables 2908 5,460 Spare parts, supplies and fuelp 463 Deferred income taxes 522 Prepaid expenses and other 330 Total current assets 9683 Property And Equipment, At Cost Aircraft and related equipment 15,632 Package handling and ground support equipment 6,082 Information technology 5,097 Vehicles 5,514 Facilities and other 8,366 40,691 Less accumulated depreciation and amortization 21,141 Net property and equipment 19,550 Other Long-term Assets Goodwill 2,790 Other assets 1,047 Total other long-term assets 3,837 Total Assets Additional Funds Needed 33,070 0 Liabilities And Stockholder's Investment Current Liabilities Current portion of long-term debt 1 Accrued salaries and employee benefits 1,277 Accounts payable 1,971 Accrued expenses 2,063 Total current liabilities 5,312 Long-term Debt, Less Current Portion 4,736 Other Long-term liabilities Deferred income taxes 2,114 Pension, postretirement healthcare and other benefit obligations 3,484 Self-insurance accruals 1,038 Deferred lease obligations 758 Deferred gains, principally related to aircraft transactions 206 Other liabilities 145 Total other long-term liabilities Total liabilities 7,745 17,793 Commitments And Contingencies Common Stockholder's Investment Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive loss Treasury stock, at cost Total Equity(Total common stockholders' investment) Total Liabilities and Equity Total Assets Less non operating assets Marketable Securities (short-term investment) Operating Liabilities Accounts Payable Accruals Short-term Debt Other Current Liabilities Other non Current Liabilities Net Operating Assets Net Income Add Back Interest Expenses Tax Rate Less Tax on Interest Expense NOPAT (Additions to net oprating assets) FCF 32 2,643 16,229 506 (4,133) 15,277 33070 2014 -33070 1971 2063 145 -28891 2324 160 35.0% (56) 2428 2014 Begin RE Add Net Income Employee incentive plans and other Less Dividend Paid End RE 2324 16229 Projected Financial Statements FedEx Corp. 2015 47,453 2016 50,365 2017 60,319 2018 2019 2020 2021 Growth Rate: 9.47% 10.85% 12.06% 65,450 GR: 71,648 9.75% 79,422 9.89% 89,000 11.49% 17,110 18,581 21,542 23,207 25,470 27,989 31,205 8,483 9,966 13,630 15,101 16,573 18,212 20,305 2,682 2,854 3,240 3,361 3,689 4,054 4,519 2,611 2,631 2,995 3,095 3,397 3,733 4,162 3,720 2,399 2,773 3,374 3,703 4,069 4,537 2,099 2,108 2,374 2,622 2,878 3,162 3,526 - 380 417 458 511 (24) (10) (11) (12) (13) 276 - 2,190 1,498 6,415 7,251 8,752 9,450 10,371 11,397 12,707 45,586 47,288 55,282 60,580 66,487 73,062 81,457 1,867 3,077 5,037 4,870 5,162 6,360 7,543 (235) (336) (512) (558) (558) (558) (558) 14 21 33 48 48 48 48 (19) (22) 21 (7) (7) (7) (7) (240) (337) (458) (517) (517) (517) (517) 1,627 2,740 4,579 4,353 4,645 5,843 7,026 577 920 1,582 (219) 1,626 2,045 2,459 1050 1820 2997 4572 3019 3798 4567 3763 3534 3969 3265 3,574 3,962 4,440 5,719 7,252 7,599 8,481 9,284 10,291 11,533 498 496 514 525 575 637 714 355 707 546 1,070 1,171 1,298 1,455 10941 11989 12628 13341 14604 16189 18141 606 16,186 17,499 18,833 20,749 22,714 25,178 28,215 6,725 7,961 8,989 9,727 10,648 11,803 13,227 5,208 5,149 5,396 5,794 6,343 7,031 7,879 5,816 6,422 6,961 7,708 8,438 9,353 10,481 8,929 9,987 10,447 11,143 12,198 13,522 15,152 42,864 47,018 50,626 55,121 60,341 66,888 74,955 21,989 22,734 24,645 26,967 29,521 32,724 36,670 20,875 24,284 25,981 28,154 30,820 34,164 38,284 3,810 6,747 7,154 6,973 7,633 8,462 9,482 1,443 2,939 2,789 3,862 4,228 4,686 5,252 5,253 9,686 9,943 10,835 11,861 13,148 14,734 37,069 45,959 48,552 52,330 57,286 63,501 71,159 0 0 0 0 972 2,032 3,316 19 29 22 1,342 1,342 1,342 1,342 1,436 1,972 1,914 2,177 2,383 2,642 2,960 2,066 2,944 2,752 2,977 3,259 3,613 4,048 2,436 3,063 3,230 3,131 3,428 3,799 4,258 5,957 8,008 7,918 9,627 10,412 11,396 12,608 7,249 13,733 14,909 15,243 15,243 15,243 15,243 1,747 1,567 2,485 2,867 3,139 3,479 3,899 4,893 6,227 4,487 2,187 2,394 2,654 2,974 1,120 1,314 1,494 1,784 1,953 2,165 2,426 711 400 531 551 603 669 749 181 155 137 121 132 147 165 218 771 518 534 585 648 726 8,870 10,434 9,652 8,044 8,806 9,761 10,938 22,076 32,175 32,479 32,914 34,460 36,400 38,790 32 32 32 32 32 32 32 2,786 2,892 3,005 3,117 3,117 3,117 3,117 16,900 18,371 20,833 24,823 27,260 30,476 34,461 172 (4,897) 14,993 (169) (415) (578) (578) (578) (578) (7,342) (7,382) (7,978) (7,978) (7,978) (7,978) 13,784 16,073 19,416 37069 45959 48552 52330 2015 -37069 2016 -45959 2017 -48552 2018 -52330 2066 2436 2944 3063 2752 3230 2977 3131 218 -32349 771 -39181 518 -42052 534 -45688 1050 235 35.0% (82) 1203 6832 8035 1820 336 35.0% (118) 2038 2871 4909 2997 512 35.0% (179) 3330 3636 6966 4572 558 35.0% (195) 4935 -45688 -40753 2015 2016 2017 2018 21,853 25,069 29,054 56313 61469 67843 2019 2020 2021 16,229 16,900 18,371 20,833 24823 27260 30476 1050 1820 2997 4572 3019 3798 4567 (152) (72) (109) (47) (47) (47) (47) (227) (277) (426) (535) (535) (535) (535) 16900 18371 20833 24823 27260 30476 34461 2022 2023 10.21% 10.64% 98,087 108,524 10.18% 10.33% 34,381 37,933 22,372 24,683 4,979 5,494 4,585 5,059 4,999 5,515 3,884 4,286 563 621 (15) (16) 14,000 15,446 89,749 99,020 8,338 9,503 (558) (558) 48 48 (7) (7) (517) (517) 7,821 8,986 2,737 5084 Taxes Rate 3,145 35% 5841 4,893 5,414 12,710 14,062 787 871 1,604 1,774 19994 22121 31,096 34,404 14,577 16,128 8,683 9,607 11,552 12,781 16,700 18,476 82,608 91,397 40,414 44,714 42,193 46,683 10,450 11,562 5,788 6,404 16,238 17,966 78,425 86,769 3,813 4,294 1,342 1,342 3,263 3,610 4,462 4,936 4,692 5,192 13,758 15,079 15,243 15,243 4,297 4,754 3,278 3,626 2,674 2,958 826 914 181 201 800 885 12,055 13,338 41,057 43,660 32 32 3,117 3,117 38,963 44,222 (578) (578) (7,978) (7,978) 33,556 38,815 74612 82475 2022 2023 34461 38963 5084 5841 (47) (47) (535) (535) 38963 44222
Purchase answer to see full attachment