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Projecting Cash Flows of Income Statements: Step by Step Forecasting Techniques

The document outlines a 17-step process for projecting cash flows and valuing a company using a discounted cash flow (DCF) model. It involves forecasting revenue, costs, earnings, and cash flows based on historical growth rates. It then calculates terminal value using both a perpetual growth method and an exit multiple method. Finally, it discounts all future cash flows to calculate total enterprise value, equity value, and share price.

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Sajal Chakarvarty
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44 views36 pages

Projecting Cash Flows of Income Statements: Step by Step Forecasting Techniques

The document outlines a 17-step process for projecting cash flows and valuing a company using a discounted cash flow (DCF) model. It involves forecasting revenue, costs, earnings, and cash flows based on historical growth rates. It then calculates terminal value using both a perpetual growth method and an exit multiple method. Finally, it discounts all future cash flows to calculate total enterprise value, equity value, and share price.

Uploaded by

Sajal Chakarvarty
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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PROJECTING CASH

FLOWS OF INCOME
STATEMENTS
STEP BY STEP FORECASTING
TECHNIQUES

STEP 1 : ON THE BASIS OF


HISTORICAL DATA WE ARE
FORECASTING SO LETS TAKE
EVERY HISTORICAL FIGURES OF I.S
HISTORICAL FIGURES TAKEN FROM INCOME STATEMENT

STEP 2 :LETS COME TO FIRST


LINED ITEM OF I.S THAT IS
REVENUE AND LETS LOOK HOW
MUCH IT HAS GROWN IN PAST
FUTURE
TAKING GROWTH DRIVER
TO FORECAST SALES

GROW AT 7% AS PER ITS LAST


YEAR 2010 TAKING IT AS A
DEADLINE AS IN LAST HISTORICAL
YEAR THAT IS IN 2010 SALES
GROWED BY 7.1%

STEP 4 : FORECASTING
HISTORICAL FIG OF 2011 OF
REVENUE AS NOW WE HAVE
ASSUMED THE % BY WHICH IT
WILL GROW

STEP 4 CONTD LETS ASSUME


REVENUE FOR 2012 ALSO

STEP 5 TAKING HISTORICAL COGS


FIG AND CALCULATING ITS
HISTORICAL GROWTH AS A % OF
TAKING
SALES
AS% COGS IS CALCULATED AS
SALES A % OF SALES
DRIVER

TO
FORECAST COGS

STEP 6 : CALCULATING
HISTORICAL % GROWTH IN SG&A
LOOKING UPON HOW MUCH IS SG
%A A % TO SALES OF THE SAME
YEAR

STEP 7 : CALCULATING SG&A OF


FORECASTED YEAR 2011

STEP 8 : CALCULATING EBITDA NOW

STEP 9 : CALCULATING %
GROWTH IN EBITDA

STEP 10 : CALCULATING
DEPRECIATION GROWTH IN %

STEP 11 : CALCULATING DEPRECIATION


FIG FORECAST FOR FUTURE YEARS

STEP 12 : CALCULATING EBIT


OF HISTORICAL YEAR AND
FORECASTED YEAR

STEP 13 CALCULATING % GROW


IN EBIT IN FORECASTED YEAR

STEP 14 : CALCULATING CAPEX


AS A % OF SALES GROWTH

STEP 15 CAPEX FOR FORECASTED YEARS AND % GROWTH INS


ALES OF LAST HISTORICAL YEAR IS LINKED TO 1ST FORECASTED
YEAR ASSUMING THE SAME % GROWTH IN COMING YEARS ALSO

STEP 16 : PROJECTING CASH FLOW CALCULATING


FCFF CHANGE IN WORKINGC APITAL

STEP 17 CALCULATING FCFF


NOW

CALCULATING NOW :
DISCOUNTING THE EXPLICIT CASH
FLOW USING NPV & XNPV
METHOD

REPRESENTS ALL THE VALUE BEYONG 2016 IN


THIS CASE ,MEANS ALL VALUES WILL BE ON
ITS PERPETUITY BEYOND 2016 AND WILL GO
ON AND ON TO INCREASE ITS OPERATIONS IS
WHAT ALL ABOUT TV

TV = FCFF *(1+G)/WACCGROWTH)

NOW DISCOUNTING THE TERMINAL


VALUE AND PUTTING ALL O IN
ADJACENT CELLS AS EXCEL GIVES
WRONG ASNWERS IF CELLS ARE BLANK
APPLYING

XNPV

METHOD

TO
DISCOUNT THE
TERMINAL VALUE

CALCULATING TV USING EXIT


MULTIPLE METHOD = SIMPLE
FCFF OF 2016 * EXIT MULTIPLE I.E
7

SAY THIS HAS EBITDA EXIT MULTIPLE AS 7X MEANS 7 TIMES

MEANS IF I AM THERE TO SELL COMPANY IT WILL B


SOLD AT 7 TIMES THE VALUE

CALCULATING TERMINAL VALUE


NOW USING EXIT MULTIPLE METHOD

CALCULATING TERMINAL VALUE USING


EXIT MULTIPLE AT END OF 2016

NOW AGAIN DISCOUNTING THE TERMINAL VALUE


OF EXIT MULTIPLE METHOD USING XNPV
METHOD

NOW DCF VALUATION

LINKING THE CELLS IN DCF


VALUATION NOW

SO TOTAL ENTERPRISE VALUE


WILL BE

CALCULATING NET DEBT = DEBT


- CASH

CALCULATING EQUITY VALUE =


ENTERPRISE VALUE NET DEBT

CALCULATING SHARE PRICE =


EQUITY VALUE / NO. OF O/S SHARES

CALCULATING SHARE PRICE NOW


USING EXIT MULTIPLE METHOD

CALCULATING TOTAL % CONTRIBUTION OF


FORECASTED CASH FLOW AND TERMINAL VALUE
IN TOTAL ENTERPRISE VALUE

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