CASE STUDY

The financial statements of Vitex Coporation from 1999 - 2002 is presented in

Excel.

You are required to prepare the proposed financial statements for Vitex Corp 2003
- 2006 starting with historical statements from 1999 to 2002 with the following
operating financial conditions:

Items in the financial Forecasting Explanation

statements factors
Sales 5.0% Growth of 5% per year
52% of revenue, quite better than the historical
Cost of goods sold 50.0% average
Gross Income

Administration expenses 29.0% 29% of revenue , expectations worse

8% of the original PP&E price, based on the
Depreciation 8.0% depreciation schedule
is -0.7% of revenue, based on historical averages
Other income/expenses -0.7%
EBIT -0.4

The fixed interest rate on cash is based on the

Interest income
Interest expenses
Income before taxes
6.0% average of the 2-period cash amount
The interest rate is calculated based on the
average of Short-term debt 2 periods plus 13.5
long-term interest expenses. Long-term interest
7.0% expenses will not change 13.5 million USD

Taxes 35.0% Tax rate

Net income

Dividend 40.0% Dividend payout ratio

Addition to retain earnings

1
 Items in the financial Forecasting Explanation
statements factors
Balance sheet ($ Million)
Asset
is 2.1% based on revenue per historical
Cash and equivalences 2.1% average
is 8.4% by melon revenue above historical
Receivables 8.4% average
Inventory 8.8% is 8.8% based on revenue per historical average
is 7.6% according to the turnover above the
Other short term assets 7.6% historical average
Total short term assets

Property, equipment, Gross 10.0% The growth rate is 10% per year
Accumulated deprecation Calculate from another item
Property, equipment, Net Calculate from another item

Other long-term assets 8.0% The growth rate is 8% per year

Total fixed assets

Total assets

Liabilities and equity

is 6.1% of revenue based on average historical
Payables 6.1% value
Short-term liabilities Stay the same from 2002
Other short-term liabilities 8.3% is 8.3% of the revenue as in 2002
Total short-term liabilities

Long-term liabilities Stay the same from 2002

Deferred tax 1.4% 1.4% of revenue, above average historical value
7.6% of revenue, based on average historical
Other long-term liabilities 7.6% svalues
Total liabilities

Equity Keep unchanged since 2002

Retained earnings Calculation based on other items
Total shareholder's equity

Total liability and

shareholder's equity

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 Questions:

1. Prepare a financial report of 4 years in the future (2003-2006) for Vitex

Corporation. Presentation of three financial statements: income statement,
balance sheet and cash flow statement.

2. In the process of balancing the expected financial statements, you need to

show whether the company requires the external fund needed annually?
What would be the additional capital needed in 2006?

3. After you have three expected financial statements, apply the following
financial analysis for the four expected future years of the company. Does
the company guarantee that free cash flow will grow over time in the future?

4. What is the company's value at reasonable level? Suppose WACC = 10%

and long-run growth rate is 6%. The P/E ratio will be reduced to 16,18, 20,
22 every year starting from year 2003.

5. As a financial risk analyst, you are required to propose future policies for
the company to reduce the amount of external fund needed and ensure ROE
and ROS of 20%. Please present the forecast results with the proposed
policies.

Financial indicators for MBC

Valuation Ratios
EPS
DPS
P/E Ratio
P/B (Price to book)Ratio
Dividend Payout Ratio

Profitability Ratios
ROE
ROS

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Growth Rates
EPS Growth Rate
Dividend Growth Rate
Sales Growth Rate
EBIT Growth Rate
Net Income Growth Rate

Liquidity Ratios
Current Ratio
Quick Ratio

Operating Efficiency Ratios

Inventory Turnover Ratio
Receivable Turnover Ratio

Leverage Ratios
Debt/Equity
Debt/Total capital

Coverage ratios
Tiems interest earned
Cash Coverage Ratio