2014 2015 2016 2017 2013 Net sales $2,200 $2,376 $2,495 $2,620 $2,000 Cash $22 $24 $25 $26 $20 Accounts receivable $308 $333 $349 $367 $280 Inventories $440 $475 $499 $524 $400 Net fixed assets $550 $594 $624 $655 $500 Accts. pay. & accruals $88 $95 $100 $105 $80 Op. costs (excl. depr.) $1,980 $2,138 $2,245 $2,358 $1,800 Depreciation $55 $59 $62 $65 $50 EBIT $165 $178 $187 $196 $150 e. 2. Using the previously forecasted items, calculate for each of the next four years the net operating profit after taxes (NOPAT), net operating working capital, total operating capital, free cash flow, (FCF), annual growth rate in FCF, and return on invested capital. What does the forecasted free cash flow in the first year imply about the need for external financing? Compare the forecasted ROIC compare with the WACC. What does this imply about how well the company is performing? NOPAT = EBIT(1-T) NOWC = (Cash + accounts receivable + inventories) (Accounts payable & accruals) − Total operating capital = NOWC + Net fixed assets FCF = NOPAT Change in total operating capital − ROIC = NOPAT/Total operating capital Scenario: Actual Forecast No Change 2014 2015 2016 2017 2013 NOPAT $99 $107 $112 $118 $90 NOWC $682 $737 $773 $812 $620 Total op. capital $1,232 $1,331 $1,397 $1,467 $1,120 FCF $8 $46 $48 −$13 Growth in FCF -164% 447.1% 5.0% ROIC 8.0% 8.0% 8.0% 8.0% 8.0%
2013 2014 2015 2016 2017 Net sales $2,000 $2,200 $2,376 $2,495 $2,620 Cash $20 $22 $24 $25 $26 Accounts receivable $280 $308 $333 $349 $367 Inventories $400 $440 $475 $499 $524 Net fixed assets $500 $550 $594 $624 $655 Accts. pay. & accruals $80 $88 $95 $100 $105 Op. costs (excl. depr.) $1,800 $1,980 $2,138 $2,245 $2,358 Depreciation $50 $55 $59 $62 $65 EBIT $150 $165 $178 $187 $196 e. 2. Using the previously forecasted items, calculate for each of the next four years the net operating profit after taxes (NOPAT), net operating working capital, total operating capital, free cash flow, (FCF), annual growth rate in FCF, and return on invested capital. What does the forecasted free cash flow in the first year imply about the need for external financing? Compare the forecasted ROIC compare with the WACC. What does this imply about how well the company is performing? NOPAT = EBIT(1-T) NOWC = (Cash + accounts receivable + inventories) − (Accounts payable & accruals) Total operating capital = NOWC + Net fixed assets FCF = NOPAT − Change in total operating capital ROIC = NOPAT/Total operating capital Scenario: Actual Forecast No Change 2013 2014 2015 2016 2017 NOPAT $90 $99 $107 $112 $118 NOWC $620 $682 $737 $773 $812 Total op. capital $1,120 $1,232 $1,331 $1,397 $1,467 FCF −$13 $8 $46 $48 Growth in FCF -164% 447.1% 5.0% ROIC 8.0% 8.0% 8.0% 8.0% 8.0%