Build A Financial Model

An company has sales of $50 million growing at 25% YoY with EBITDA margins at 20%. It secures a JV in Year 3 w
(linear scaling implies Revenue Yr-3=20, Yr-4=30). Capex required for normal growth of the firm is 7.5% of sales an
of JV sales). The model should use debt, retained earnings to grow the firm. The current debt ratio of the firm is 2
days. New Capex should be done at current debt equity ratio. For current year inventory = 6mn, receivables = 8 m
rate for the company is 30%, Depreciation rate is 10%, Interest Expense Rate is 10% (depreciation and interest to
beginning of period cash). Value the firm using both methods DCF and Relative. For DCF Valuation assume weight
premium is 7% and Beta of comparable company is 0.5. Company goes in maturity stage from year 7 onwards wit
the firm in year 6 at PE of 15 ? What is the value of the firm today at 1 year forward PE 10 ?

Formulae for Working Capital Line Items:

DOH Average Inventory / (COGS/365)
DSO Average Accounts Receivables / (Sales/365)
Pay Days Average Trade Payables / (COGS/365)
 It secures a JV in Year 3 with additional business of $20 million at EBITDA of 12.5% which linearly scales up to $50 million in
the firm is 7.5% of sales and Capex required for expansion at time of JV is $4 million (after JV year capex for JV revenue will b
t debt ratio of the firm is 2:1 with average cash conversion cycle of 90 days and payment terms with debtor and creditors at
y = 6mn, receivables = 8 mn, payables = 5 mn and retained earning = 9mn, Fixed Asset, Net & Gross = 15mn and Cash = 3mn.
preciation and interest to be calculated on average of current and previous year) and Interest Income Rate is 5%(interst inco
F Valuation assume weights of equity and debt based on current book value. Risk free return in the economy is 7%, market ri
e from year 7 onwards with growth at 5% forever. For relative valuation use P/E as valuation metric. What would be the valu
10 ?
 Year-0 Year-1 Year-2 Year-3 Year-4 Year-5 Year-6

Income Statement

Sales
y/y % growth
Sales - JV
Total Sales

COGS
EBITDA
EBITDA-JV
EBITDA-Total
Depreciation
EBIT
Interest Expense
Interest Income
EBT

Tax
PAT

Capex Schedule
Capex
Capex as % Sales
Capex - JV
Capex as % Sales JV
Total Capex

Capex Funding
Debt
Equity - Retained Earning

Balance Sheet

Cash
Inventory
Account Receivable
PPE, Gross
Acc Dep
PPE, Net
Total Assets

Accounts Payable
Debt
Retained Earnings
Total Liabilities and Sh Equity
Checksum

D/E
DOH
DSO
Pay Days

Cash Flow Statement

PAT
Dep
Change in Inv
Change in AR
Change in AP
CFO

Capex
CFI

Change in Debt
CFF

Net Change in Cash

BOP Cash
EOP Cash

DCF Valuation

We
Wd
Ke
Kd
WACC

NOPAT = EBIT*(1-T)
Depreication
Capex
Change in Working Capital
FCFF
TerminalValue
Total Cash Flows

Enterprise Value
Less: Debt
Add: Cash
Intrinsic Equity Value

Relative Valuation

PAT - Year1 PAT - Year6

PE PE
Value Value

CAGR %