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    Forecast an Income Statement, Balance Sheet, Cash Flows, Shares

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    1. Forecasting an Income Statement
    Abercrombie & Fitch? reports the following income statements.
    Income Statement, For Fiscal Years Ended ($ thousands) 2008 2007
    Net sales $3,657,847 $3,318,158
    Cost of goods sold 1,238,480 1,109,152
    Gross profit 2,419,367 2,209,006
    Stores and distribution expense 1,386,846 1,187,071
    Marketing, general and administrative expense 395,758 373,828
    Other operating (income), net (11,734) (9,983)
    Operating income 648,497 658,090
    Interest income, net (18,808) (13,896)
    Income before income taxes 667,305 671,986
    Provision for income taxes 283,628 249,800
    Net Income $ 383,677 $ 422,186

    Forecast Abercrombie & Fitch's 2009 income statement assuming the following income statement relations. Assume no change for all other accounts not listed below. All percentages, other than sales growth and provision for income taxes, are based on percent of net sales. (Round your answers to the nearest whole number.)

    Net sales growth 10.2%
    Gross profit margin 66.1%
    Stores and distribution expense/Net sales 37.9%
    Marketing, general and administrative expense/Net sales 10.8%
    Other operating (income), net/Net sales −0.3%
    Provision for income taxes/Income before income taxes 42.5%

    Forecasted Income Statement, For Fiscal Years Ended ($ thousands) 2008 2009
    Net sales $3,657,847 $

    Cost of goods sold 1,238,480

    Gross profit 2,419,367

    Stores and distribution expense 1,386,846

    Marketing, general and administrative expense 395,758

    Other operating (income), net (11,734)

    Operating income 648,497

    Interest income, net (18,808)

    Income before income taxes 667,305

    Provision for income taxes 283,628

    Net Income $ 383,677

    2. Analyzing, Forecasting, and Interpreting Both Income Statement and Balance Sheet
    Following are the income statements and balance sheets of Best Buy Co., Inc.?
    Balance Sheet ($ millions, except share amounts) March 1, 2008 March 3, 2007
    Assets
    Cash and cash equivalents $ 1,438 $ 1,205
    Short-term investments 64 2,588
    Receivables 549 548
    Merchandise inventories 4,608 4,028
    Other current assets 583 712
    Total current assets 7,242 9,081
    Property and equipment* 5,608 4,904
    Less accumulated depreciation 2,302 1,966
    Net property and equipment 3,306 2,938
    Other assets** 2,110 1,551
    Total assets $12,658 $13,570
    Liabilities and shareholders' equity
    Accounts payable $ 4,297 $ 3,934
    Unredeemed gift card liabilities 531 496
    Accrued liabilities, accrued compensation and related expenses? 1,348 1,322
    Accrued income taxes 404 489
    Short-term debt 156 41
    Current portion of long-term debt 33 19
    Total current liabilities 6,769 6,301
    Long-term liabilities 838 443
    Long-term debt 627 590
    Minority interests 40 35
    Shareholders' equity
    Preferred stock, $1.00 par value: Authorized?400,000
    shares; Issued and outstanding?none __ __
    Common stock, $0.10 par value: Authorized?1.0 billion
    shares; Issued and outstanding?410,578,000
    and 480,655,000 shares, respectively 41 48
    Additional paid-in capital 8 430
    Retained earnings 3,833 5,507
    Accumulated other comprehensive income 502 216
    Total shareholders' equity 4,384 6,201
    Total liabilities and shareholders' equity $12,658 $13,570
    * Land, buildings, fixtures, equipment, leasehold improvements, and property under capital leases are combined.
    ** Goodwill, tradenames, equity and other investments, and other noncurrent assets are combined.
    ? Accrued liabilities and accrued compensation and related expenses are combined.
    Income Statement, Fiscal Years Ended ($ millions) 2008 2007
    Revenue $39,023 $35,934
    Cost of goods sold 29,477 27,165
    Gross profit 9,546 8,769
    Selling, general and administrative expenses 7,285 6,770
    Operating income 2,261 1,999
    Other income* 60 130
    Earnings before income tax expense 2,321 2,129
    Income tax expense 805 752
    Net earnings $ 1,516 $ 1,377

    * Other income combines investment income, interest expense, minority interest in earnings, and equity in loss of affiliates.

    (a) Forecast Best Buy's 2009 income statement and balance sheet using the following relations; assume no change for all other accounts not listed below. Assume that all capital expenditures are purchases of property and equipment, and that depreciation is included as part of selling, general and administrative expenses ($ millions). (Round your answers to the nearest whole number.)

    Revenue growth 8.6%
    Gross profit margin 24.5%
    Selling, general and administrative expenses/Revenue 18.7%
    Income tax expense/Earnings before income tax expense 34.7%

    Receivables/Revenue 1.4%
    Merchandise inventories/Revenue 11.8%
    Accounts payable/Revenue 11.0%
    Capital expenditures/Revenue 2.1%
    Accrued liabilities, accrued compensation and related expenses/Revenue 3.5%
    Accrued income taxes/Income tax expense 50.2%
    Dividends/Net earnings 13.5%
    Depreciation expense/Prior year property and equipment, gross 11.8%
    Portion of long-term debt due in 2010 $16

    Best Buy Forecasted Income Statement ($ millions) 2008 2009
    Revenue $39,023 $

    Cost of goods sold 29,477

    Gross profit 9,546

    Selling, general and administrative expenses 7,285

    Operating income 2,261

    Other income* 60

    Earnings before income tax expense 2,321

    Income tax expense 805

    Net earnings $ 1,516 $

    Best Buy Forecasted Balance Sheet ($ millions) 2008 2009
    Assets
    Cash and cash equivalents $ 1,438 $

    Short-term investments 64

    Receivables 549

    Merchandise inventories 4,608

    Other current assets 583

    Total current assets 7,242

    Property and equipment* 5,608

    Less accumulated depreciation 2,302

    Net property and equipment 3,306

    Other assets** 2,110

    Total assets $12,658 $

    Liabilities and shareholders' equity
    Accounts payable $ 4,297 $

    Unredeemed gift card liabilities 531

    Accrued liabilities, accrued compensation and related expenses 1,348

    Accrued income taxes 404

    Short-term debt 156

    Current portion of long-term debt 33

    Total current liabilities 6,769

    Long-term liabilities 838

    Long-term debt 627

    Minority interests 40

    Shareholders' equity
    Common stock 41

    Additional paid-in capital 8

    Retained earnings 3,833

    Accumulated other comprehensive income 502

    Total shareholders' equity 4,384

    Total liabilities and shareholders' equity $12,658 $

    3. Forecasting the Statement of Cash Flows
    Refer to the Best Buy Co., Inc.?, financial information shown below. Prepare a forecast of its fiscal year 2009 statement of cash flows.
    Balance Sheet ($ millions, except share amounts) March 1, 2008 March 3, 2007
    Assets
    Cash and cash equivalents $ 1,478 $ 1,205
    Short-term investments 64 2,588
    Receivables 549 548
    Merchandise inventories 4,708 4,028
    Other current assets 583 712
    Total current assets 7,382 9,081
    Property and equipment* 5,644 4,904
    Less accumulated depreciation 2,302 1,966
    Net property and equipment 3,342 2,938
    Other assets** 2,110 1,551
    Total assets $12,834 $13,570
    Liabilities and shareholders' equity
    Accounts payable $ 4,297 $ 3,934
    Unredeemed gift card liabilities 531 496
    Accrued liabilities, accrued compensation and related expenses? 1,348 1,322
    Accrued income taxes 404 489
    Short-term debt 156 41
    Current portion of long-term debt 34 19
    Total current liabilities 6,770 6,301
    Long-term liabilities 838 443
    Long-term debt 627 590
    Minority interests 40 35
    Shareholders' equity
    Preferred stock, $1.00 par value: Authorized?400,000
    shares; Issued and outstanding?none __ __
    Common stock, $0.10 par value: Authorized?1.0 billion
    shares; Issued and outstanding?410,578,000
    and 480,655,000 shares, respectively 41 48
    Additional paid-in capital 8 430
    Retained earnings 4,008 5,507
    Accumulated other comprehensive income 502 216
    Total shareholders' equity 4,559 6,201
    Total liabilities and shareholders' equity $12,834 $13,570

    * Land, buildings, fixtures, equipment, leasehold improvements, and property under capital leases are combined.
    ** Goodwill, tradenames, equity and other investments, and other noncurrent assets are combined.
    ? Accrued liabilities and accrued compensation and related expenses are combined.
    Income Statement, Fiscal Years Ended ($ millions) 2008 2007
    Revenue $40,163 $35,934
    Cost of goods sold 30,477 27,165
    Gross profit 9,686 8,769
    Selling, general and administrative expenses 7,385 6,770
    Operating income 2,301 1,999
    Other income* 61 130
    Earnings before income tax expense 2,362 2,129
    Income tax expense 815 752
    Net earnings $ 1,547 $ 1,377
    * Other income combines investment income, interest expense, minority interest in earnings, and equity in loss of affiliates.
    Revenue growth 11.8%
    Gross profit margin 24.1%
    Selling, general and administrative expenses/Revenue 18.4%
    Income tax expense/Earnings before income tax expense 34.5%

    Receivables/Revenue 1.4%
    Merchandise inventories/Revenue 11.7%
    Accounts payable/Revenue 10.7%
    Capital expenditures/Revenue 2.0%
    Accrued liabilities, accrued compensation and related expenses/Revenue 3.4%
    Accrued income taxes/Income tax expense 49.6%
    Dividends/Net earnings 13.5%
    Depreciation expense/Prior year property and equipment, gross 11.8%
    Portion of long-term debt due in 2010 $16

    Best Buy Forecasted Income Statement ($ millions) 2008 2009
    Revenue $40,163 $44,902
    Cost of goods sold 30,477 34,081
    Gross profit 9,686 10,821
    Selling, general and administrative expenses 7,385 8,262
    Operating income 2,301 2,559
    Other income* 61 61
    Earnings before income tax expense 2,362 2,620
    Income tax expense 815 904
    Net earnings $ 1,547 $ 1,716

    Best Buy Forecasted Balance Sheet ($ millions) 2008 2009
    Assets
    Cash and cash equivalents $ 1,478 $ 2,802
    Short-term investments 64 64
    Receivables 549 629
    Merchandise inventories 4,708 5,254
    Other current assets 583 583
    Total current assets 7,382 9,331
    Property and equipment* 5,644 6,542
    Less accumulated depreciation 2,302 2,962
    Net property and equipment 3,342 3,580
    Other assets** 2,110 2,110
    Total assets $12,834 $15,020
    Liabilities and shareholders' equity
    Accounts payable $ 4,297 $ 4,805
    Unredeemed gift card liabilities 531 531
    Accrued liabilities, accrued compensation and related expenses 1,348 1,527
    Accrued income taxes 404 448
    Short-term debt 156 156
    Current portion of long-term debt 34 16
    Total current liabilities 6,770 7,483
    Long-term liabilities 838 838
    Long-term debt 627 611
    Minority interests 40 40
    Shareholders' equity
    Common stock 41 41
    Additional paid-in capital 8 8
    Retained earnings 4,008 5,498
    Accumulated other comprehensive income 502 502
    Total shareholders' equity 4,559 6,089
    Total liabilities and shareholders' equity $12,834 $15,020

    (Round your answers to the nearest whole number.)
    Best Buy Forecasted Statement of Cash Flows ($ millions) 2009
    Net earnings $

    Depreciation

    Receivables

    Merchandise inventories

    Accounts payable

    Accrued liabilities, accrued compensation and related expenses

    Accrued income taxes

    Net cash flow from operating activities

    Capital expenditures

    Net cash flow from investing activities

    Long-term debt

    Dividends

    Net cash flow from financing activities

    Net change in cash

    Beginning cash

    Ending cash $

    4. Analyzing, Forecasting, and Interpreting Income Statement and Balance Sheet
    Following are the income statement and balance sheet of Whole Foods Market, Inc.?
    Income Statement, For Years Ended (in $ 000s) 2008 2007 2006
    Sales $7,953,912 $6,591,773 $5,607,376
    Cost of goods sold and occupancy costs 5,247,207 4,295,170 3,647,734
    Gross profit 2,706,705 2,296,603 1,959,642
    Direct store expenses 2,107,940 1,711,229 1,421,968
    General and administrative expenses 270,428 217,743 181,244
    Pre-opening expenses 55,554 59,319 32,058
    Relocation, store closures and lease termination costs 36,545 10,861 5,363
    Operating income 236,238 297,451 319,009
    Interest expense (40,616) (4,208) (32)
    Investment and other income 6,237 11,324 20,736
    Income before income taxes 201,859 304,567 339,713
    Provision for income taxes 91,995 121,827 135,885
    Net income $ 109,864 $ 182,740 $ 203,828

    Balance Sheet (in $000s)* 2008 2007
    Assets
    Cash and cash equivalents $ 30,534 $ __
    Restricted cash 647 2,310
    Accounts receivable 115,424 105,209
    Proceeds receivable for divestiture __ 165,054
    Merchandise inventories 327,452 288,112
    Prepaid expenses and other current assets 69,750 40,402
    Deferred income taxes 76,229 66,899
    Total current assets 620,036 667,986
    Property and equipment 2,894,329 2,483,350
    Accumulated depreciation (997,612) (816,791)
    Property and equipment, net 1,896,717 1,666,559
    Goodwill and intangible assets, net 738,258 766,533
    Deferred income taxes 111,002 104,877
    Other assets 10,853 7,173
    Total assets $3,376,866 $3,213,128

    (in $000s)* 2008 2007
    Liabilities and shareholders' equity
    Current installments of long-term debt and capital lease obligations $ 380 $ 24,781
    Accounts payable 183,134 225,728
    Accrued payroll, bonus and other benefits due team members 196,233 181,290
    Dividends payable __ 25,060
    Other current liabilities 284,630 315,491
    Total current liabilities 664,377 772,350
    Long-term debt and capital lease obligations, less current installments 928,990 736,087
    Deferred lease liabilities and other long-term liabilities 282,945 245,887
    Total liabilities 1,876,312 1,754,324
    Shareholders' equity
    Common stock, no par value, 300,000 shares authorized,
    140,286 and 143,787 shares issued, 140,286 and 139,240 shares
    outstanding in 2008 and 2007, respectively 1,066,980 1,232,845
    Common stock in treasury, at cost __ (199,961)
    Accumulated other comprehensive income 448 15,722
    Retained earnings 433,126 410,198
    Total shareholders' equity 1,500,554 1,458,804
    Total liabilities and shareholders' equity $3,376,866 $3,213,128

    * Gross property and equipment and its accumulated depreciation are inserted in the balance sheet; both are taken from footnotes to financial statements. Goodwill and other intangible assets are combined, as are deferred lease liabilities and other long-term liabilities.
    (a) Forecast Whole Foods Market's 2009 income statement and balance sheet using the following relations; assume no change for all other accounts not listed below ($ 000s). (Round your answers to the nearest whole number.)

    Sales growth 20.7%
    Gross profit margin 34.0%
    Direct store expenses/Sales 26.5%
    General and administrative expenses/Sales 3.4%
    Pre-opening expenses/Sales 0.7%
    Relocation, store closures and lease termination costs/Sales 0.5%
    Depreciation/Prior year property and equipment, gross 9.8%
    Amortization/Prior year goodwill and intangible assets 0.8%
    Provision for income taxes/Income before income taxes 45.6%

    Accounts receivable/Sales 1.5%
    Merchandise inventories/Sales 4.1%
    Capital expenditures/Sales 6.6%
    Accounts payable/Sales 2.3%
    Accrued payroll, bonus and other benefits due team members/Sales 2.47%
    Dividends $109,072
    Installments of long-term debt and capital lease obligations, due in 2009 and 2010 $0

    Whole Foods Forecasted Income Statement (in $ 000s) 2008 2009
    Sales $7,953,912 $

    Cost of goods sold and occupancy costs 5,247,207

    Gross profit 2,706,705

    Direct store expenses 2,107,940

    General and administrative expenses 270,428

    Pre-opening expenses 55,554

    Relocation, store closures and lease termination costs 36,545

    Operating income 236,238

    Interest expense (40,616)

    Investment and other income 6,237

    Income before income taxes 201,859

    Provision for income taxes 91,995

    Net income $ 109,864 $

    Whole Foods Forecasted Balance Sheet (in $000s) 2008 2009
    Assets
    Cash and cash equivalents $ 30,534 $

    Restricted cash 647

    Accounts receivable 115,424

    Merchandise inventories 327,452

    Prepaid expenses and other current assets 69,750

    Deferred income taxes 76,229

    Total current assets 620,036

    Property and equipment 2,894,329

    Accumulated depreciation (997,612)

    Property and equipment, net 1,896,717

    Goodwill and intangible assets, net 738,258

    Deferred income taxes 111,002

    Other assets 10,853

    Total assets $3,376,866 $

    Liabilities and shareholders' equity
    Current installments of long-term debt and capital lease obligations $ 380 $

    Accounts payable 183,134

    Accrued payroll, bonus and other benefits due team members 196,233

    Other current liabilities 284,630

    Total current liabilities 664,377

    Long-term debt and capital lease obligations, less current installments 928,990

    Deferred lease liabilities and other long-term liabilities 282,945

    Total liabilities 1,876,312

    Shareholders' equity
    Common stock 1,066,980

    Accumulated other comprehensive income 448

    Retained earnings 433,126

    Total shareholders' equity 1,500,554

    Total liabilities and shareholders' equity $3,376,866 $

    5. Estimating Share Value Using the DCF Model
    Following are forecasts of Abercrombie & Fitch's? sales, net operating profit after tax (NOPAT), and net operating assets (NOA) as of January 31, 2008.

    Reported
    2008 Horizon Period Terminal
    Period
    (In millions) 2009 2010 2011 2012
    Sales $3,750 $4,500 $5,400 $6,480 $7,776 $7,853
    NOPAT 464 568 653 782 941 973
    NOA 1,345 1,616 1,923 2,321 2,779 2,817

    Answer the following requirements assuming a discount rate (WACC) of 13.3%, a terminal period growth rate of 1%, common shares outstanding of 86.2 million, and net nonoperating obligations (NNO) of $(294) million (negative NNO reflects net nonoperating assets such as investments rather than net obligations).

    (a) Estimate the value of a share of Abercrombie & Fitch common stock using the discounted cash flow (DCF) model as of January 31, 2008. (Round your answer to the nearest whole number except for the discount factors, shares outstanding, and the stock price per share. Round the discount factors to five decimal places, the shares outstanding to one decimal place, and and the stock price to two decimal places.)
    Reported
    2008 Horizon Period Terminal
    Period
    (In millions) 2009 2010 2011 2012
    Increase in NOA
    FCFF (NOPAT - Increase in NOA)
    Discount factor [1 / (1 + rw)t ]
    Present value of horizon FCFF
    Cum present value of horizon FCFF $
    Present value of terminal FCFF
    Total firm value
    Less NNO (Plus negative NNO)
    Firm equity value $

    Shares outstanding (millions)
    Stock price per share $

    6. Estimating Share Value Using the ROPI Model
    Following are forecasts of Abercrombie & Fitch's? sales, net operating profit after tax (NOPAT), and net operating assets (NOA) as of January 31, 2008. Refer to the information in the table to answer the following requirements.
    Reported
    2008 Horizon Period Terminal
    Period
    (In millions) 2009 2010 2011 2012
    Sales $3,750 $4,500 $5,400 $6,480 $7,776 $7,853
    NOPAT 464 555 672 795 941 986
    NOA 1,315 1,614 1,930 2,336 2,773 2,798

    Answer the following requirements assuming a discount rate (WACC) of 13.3%, a terminal period growth rate of 1%, common shares outstanding of 86.2 million, and net nonoperating obligations (NNO) of $(270) million (negative NNO reflects net nonoperating assets such as investments rather than net obligations).

    (a) Estimate the value of a share of Abercrombie & Fitch common stock using the residual operating income (ROPI) model as of January 31, 2008. (Round your answer to the nearest whole number except for the discount factors, shares outstanding, and the stock price per share. Round the discount factors to five decimal places, the shares outstanding to one decimal place, and and the stock price to two decimal places.)

    Reported
    2008 Horizon Period Terminal
    Period
    (In millions) 2009 2010 2011 2012
    ROPI (NOPAT - [NOABeg × rw])
    Discount factor [1 / (1 + rw)t ]
    Present value of horizon ROPI
    Cum present value of horizon ROPI $
    Present value of terminal ROPI
    NOA
    Total firm value
    Less NNO (Plus negative NNO)
    Firm equity value $

    Shares outstanding (millions)
    Stock price per share $.

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    https://brainmass.com/business/leasing/forecast-income-statement-balance-sheet-cash-flows-shares-436959

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