Running head: Business & Finance homework help 1

Business & Finance homework help

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 Business & Finance homework help 2

Business & Finance homework help

Part 1

The estimated sales growth rate for the company is from 1.0% to 3.0% over last 3 years. This

3 year period will help us get accurate data for the next annual accounting year. The cost of

goods sold is estimated to be 72.3% of the sales over the forecasting period and SG&A

expenses are estimated to be 21% of the sales over the forecasting period. Depreciation is

7.6% of sales. This brings us to a forecasting statement for next financial years.

The profitability of Wal-Mart over the period of time seems to be stable. The return on equity

over the forecasting period ranges from 17.9% to 18.1%. This states that the shareholders get

back a return of 0.17 cents on every dollar spent. The net margin of the company over the

period of time is estimated to be around 2.8% or 2.9%.

The debt to equity ratio is 52.1% over the estimation period. This states that Wal-Mart has

high leverage during the estimation period. The current ratio and the quick ratio of the

company are feeble during the period when the company has high leverage and low ability to

pay off its short term debts. On that note the company needs to improve on its profitability as

well as leverage over the period of time.

Company Name War-Mart

Actual Actual Forecast Forecast

Fiscal Year End Date 2016/02/01 2017/02/01 2018/02/01 2019/02/01
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Pro Forma Statement of Cash Flows

Operating:
Net Income 14,694,000 13,643,000 13,945,451 14,118,275
+Depreciation & Amortization 9,454,000 10,080,000 10,052,856 10,161,433
+Increase in Deferred Taxes (1,314,000) 976,000 42,398 51,658
+Increase in Other Liabilities 2,912,000 1,342,000 101,607 123,798
+Minority Interest in Earnings 386,000 650,000 664,410 672,644
+Preferred Dividends 0 0 0 0
=Funds From Operations 26,132,000 26,691,000 24,806,722 25,127,808
-Increase in Receivables 1,154,000 (211,000) (57,095) (69,565)
-Increase in Inventory 672,000 1,423,000 (421,204) (513,194)
-Increase in Other Current Assets 783,000 (500,000) (18,993) (23,141)
+Increase in Accounts Payable 77,000 2,946,000 405,421 493,964
+Increase in Taxes Payable (500,000) 400,000 9,012 10,980
+Increase in Other Curr. Liabilities 455,000 1,047,000 202,099 246,237
=Cash From Operations 28,773,000 31,796,000 24,925,962 25,273,089

Investing:
-Capital Expenditures (9,315,000) (7,742,000) (11,170,084) (11,522,663)
-Increase in Investments (109,000) (1,358,000) (19,364) (23,594)
-Purchases of Intangibles 1,407,000 (342,000) (166,707) (203,115)
-Increase in Other Assets (567,000) (2,432,000) (77,712) (94,685)
=Cash From Investing (8,584,000) (11,874,000) (11,433,867) (11,844,056)

Financing:
+Increase in Debt (3,213,000) (4,391,000) 396,927 483,616
-Dividends Paid to Minority Interest (1,864,000) (978,000) (637,628) (640,013)
-Dividends Paid on Preferred 0 0 0 0
+Increase in Pref. Stock 0 0 0 0
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-Dividends Paid on Common (6,294,000) (6,216,000) (6,353,802) (6,432,544)

+/-Net Issuance of Common Stock (663,000) 554,000 (6,830,398) (6,758,223)
+/-Clean Surplus Plug (Ignore) (8,585,000) (10,729,000) 0 0
=Cash From Financing (20,619,000) (21,760,000) (13,424,901) (13,347,164)

Net Change in Cash (430,000) (1,838,000) 67,193 81,868

+ Beginning Cash Balance 9,135,000 8,705,000 6,867,000 6,934,193
= Ending Cash Balance 8,705,000 6,867,000 6,934,193 7,016,062

Free Cash Flow to Common Equity

Net Income 14,694,000 13,643,000 13,945,451 14,118,275

- Increase in Common Equity 848,000 2,748,000 (761,251) (927,508)
+/-Clean Surplus Plug (Ignore) (8,585,000) (10,729,000) 0 0
=Free Cash Flow to Common Equity 6,957,000 5,662,000 13,184,200 13,190,767

Computation based on SCF:

+Cash From Operations 28,773,000 31,796,000 24,925,962 25,273,089
-Increase in Cash 430,000 1,838,000 (67,193) (81,868)
+Cash From Investing (8,584,000) (11,874,000) (11,433,867) (11,844,056)
+Increase in Debt (3,213,000) (4,391,000) 396,927 483,616
-Dividends Paid to Minority Interest (1,864,000) (978,000) (637,628) (640,013)
-Dividends Paid on Preferred 0 0 0 0
+Increase in Preferred Stock 0 0 0 0
+/-Clean Surplus Plug (Ignore) (8,585,000) (10,729,000) 0 0
=Free Cash Flow to Common Equity 6,957,000 5,662,000 13,184,200 13,190,767

Financing Flows:
+Dividends Paid 6,294,000 6,216,000 6,353,802 6,432,544
-Net Issuance of Common Stock 663,000 (554,000) 6,830,398 6,758,223
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= Free Cash Flow to Common Equity 6,957,000 5,662,000 13,184,200 13,190,767

Free Cash Flow to all Investors

Net Operating Income 16,799,307 15,873,828 16,116,860 16,314,194

- Increase in Net Operating Assets 5,539,000 7,467,000 (1,184,960) (1,443,754)
+/-Clean Surplus Plug (Ignore) (8,585,000) (10,729,000) 0 0
=Free Cash Flow to Investors 13,753,307 12,611,828 14,931,900 14,870,440

Computation based on SCF:

Cash From Operations 28,773,000 31,796,000 24,925,962 25,273,089
-Increase in Operating Cash 430,000 1,838,000 (67,193) (81,868)
+Cash from Investing (8,584,000) (11,874,000) (11,433,867) (11,844,056)
+Interest Expense 2,467,000 2,267,000 2,161,125 2,184,466
-Tax Shield on Interest (747,693) (686,172) (654,126) (661,191)
+/-Clean Surplus Plug (Ignore) (8,585,000) (10,729,000) 0 0
=Free Cash Flow to Investors 13,753,307 12,611,828 14,931,900 14,870,440

Financing Flows:
+Dividends on Common Stock 6,294,000 6,216,000 6,353,802 6,432,544
+Interest Expense 2,467,000 2,267,000 2,161,125 2,184,466
-Tax Shield on Interest (747,693) (686,172) (654,126) (661,191)
+Dividends on Preferred Stock 0 0 0 0
+Dividends Paid to Minority Interest 1,864,000 978,000 637,628 640,013
-Net Issuance of Common Stock 663,000 (554,000) 6,830,398 6,758,223
-Net Issuance of Debt 3,213,000 4,391,000 (396,927) (483,616)
-Net Issuance of Preferred Stock 0 0 0 0
=Free Cash Flow to Investors 13,753,307 12,611,828 14,931,900 14,870,440

Traditional Computation of FCF:

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EBIT 24,105,000 22,764,000 23,112,522 23,395,510

-Taxes on EBIT (7,305,693) (6,890,172) (6,995,662) (7,081,317)
+Increase in Deferred Taxes (1,314,000) 976,000 42,398 51,658
= NOPLAT 15,485,307 16,849,828 16,159,258 16,365,852
+Depreciation & Amortization 9,454,000 10,080,000 10,052,856 10,161,433
+Non-Operating Income (Loss) 0 0 0 0
+Other Income (Loss) 0 0 0 0
+Ext. Items & Disc. Ops. 0 0 0 0
=Gross Cash Flow 24,939,307 26,929,828 26,212,114 26,527,285
-Increase in Working Capital 3,071,000 6,943,000 52,046 63,413
-Capital Expenditures (9,315,000) (7,742,000) (11,170,084) (11,522,663)
-Increase in Investments (109,000) (1,358,000) (19,364) (23,594)
-Purchases of Intangibles 1,407,000 (342,000) (166,707) (203,115)
-Increase in Other Assets (567,000) (2,432,000) (77,712) (94,685)
+Increase in Other Liabilities 2,912,000 1,342,000 101,607 123,798
+/-Clean Surplus Plug (Ignore) (8,585,000) (10,729,000) 0 0
=Free Cash Flow to Investors 13,753,307 12,611,828 14,931,900 14,870,440

Analysis of Earnings Quality

(Red Shading = Quality Flag)
Current Op. Accruals/NOA (0.021) (0.043) (0.001) (0.001)
+ Non-Current Op. Accruals/NOA (0.032) (0.007) 0.011 0.013
= Operating Accruals/NOA (0.041) (0.047) 0.010 0.012

Sales Growth (0.007) 0.008 0.010 0.012

- NOA Turnover Growth (0.034) (0.054) (0.000) 0.000
- Interaction 0.000 (0.000) (0.000) 0.000
= Operating Accruals/NOA (0.041) (0.047) 0.010 0.012
Fiscal Year 2015 2016 2017 2018

Answer 2:
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Financial statement analyses are significant for the scrutiny and the assessment of the

company in order to examine the performance of the company. Performance can also be

compared in terms of the firm competitors and its past performance. The diverse analysis that

can be used includes the economic value analysis and market value analysis (Pearce, &

Moran, 2013) However, a number of accounting techniques can be used for the examination

of the company’s performance. For example, cash flow analysis, ratio analysis, financial

statement analysis. Economic Value Analysis is one of the most important models. “EVA

Momentum also fit in the added value from vibrant factors such as profitable growth rate,

strategic reduction of expenditure. Thus informed, managers are able to make more

intelligent, and ultimately more valuable, decisions (Macintosh, & Quattrone, 2010). The

sustainable growth for Wal-Mart ranges from 10% to 13% for the estimation period. A

sustainable growth rate is the rate at which a firm can increase its income without the

necessity to borrow money from other sources. In this case, we will assume that all income

accounts increase as a percent of sales; all asset accounts increase as a percent of sales,

spontaneous liabilities increase as a percent of sales, and all financing accounts remain

constant. Also we will assume that the company will pay the exact same dollar amount in

dividends in the next annual accounting period that it paid during the most recent period.

Assets utilization rate = total sales thought out the year/ total assets at the end of the year.

2016 2017 2018

total sales thought out the year 482130000 485873000 490627252
total assets at the end of the 199581000 198825000 200770497

year
Assets utilization rate 2.42 2.44 2.44

Profitability rate = net income /total sales throughout the year. Net income = sales expenses.

2016 2017 2018

Net income 14694000 13643000 13945451
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Total sales 482130000 485873000 490627252

Profitability 0.03 0.03 0.03

Financial utilization rate = total debt /total equity

2016 2017 2018

Total debt 115970000 118290000 119447464
Total Equity 80546000 77798000 78559251
Financial utilization rate 1.44 1.52 1.52

Return on equity = assets utilization rate × profitability rate × financial utilization rate

2.44× 0.03 × 1.52 = 0.11 × 100= 11%

Dividend rate = dividend/ net income

2016 2017 2018

Dividend 0 0 0
Net income 14694000 13643000 13945451
Dividend rate 0 0 0
Business retention rate = 100% -dividend rate

= 100-0= 100%

Therefore the sustainable growth rate = ROE × business retention rate = 11 × 100=

1100/100= 11%

Actual growth rate= sales from starting point/ most recent sales figure

= 482130000/ 490627252= 0.98* 100= 98%

This means the company has an increase in sales with 98%. A lower actual growth rate than

sustainable growth rate may serve as evidence that your business isn’t performing well.
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Reference

Macintosh, N. B., & Quattrone, P. (2010). Management accounting and control systems: An

organizational and sociological approach. John Wiley & Sons.

Pearce, D., & Moran, D. (2013). The economic value of biodiversity. Routledge.