Build a Model

Build a Model

Solution 7/16/15
Chapter: 2
Problem: 15
a. Using the financial statements shown below, calculate net operating working capital, total net operating capital, net operating profit after taxes, free cash flow, and return on invested capital for the most recent year.
Lan & Chen Technologies: Income Statements for Year Ending December 31
(Thousands of Dollars) 2016 2015
Sales $945,000 $900,000
Expenses excluding depreciation and amortization 812,700 774,000
EBITDA $132,300 $126,000
Depreciation and amortization 33,100 31,500
EBIT $99,200 $94,500
Interest Expense 10,470 8,600
EBT $88,730 $85,900
Taxes (40%) 35,492 34,360
Net income $53,238 $51,540
Common dividends $43,300 $41,230
Addition to retained earnings $9,938 $10,310
Lan & Chen Technologies: December 31 Balance Sheets
(Thousands of Dollars)
Assets 2016 2015
Cash and cash equivalents $47,250 $45,000
Short-term investments 3,800 3,600
Accounts Receivable 283,500 270,000
Inventories 141,750 135,000
Total current assets $476,300 $453,600
Net fixed assets 330,750 315,000
Total assets $807,050 $768,600
Liabilities and equity
Accounts payable $94,500 $90,000
Accruals 47,250 45,000
Notes payable 26,262 9,000
Total current liabilities $168,012 $144,000
Long-term debt 94,500 90,000
Total liabilities $262,512 $234,000
Common stock 444,600 444,600
Retained Earnings 99,938 90,000
Total common equity $544,538 $534,600
Total liabilities and equity $807,050 $768,600
Key Input Data
Tax rate 40%
Net operating working capital
2016 NOWC = Operating current assets Operating current liabilities
2016 NOWC = Kenneth D. Jackson: Short-Term Investments are not part of current operating assets
Kenneth D. Jackson: Notes Payable are not part of current operating liabilities 2016 NOWC =
2015 NOWC = Operating current assets Operating current liabilities
2015 NOWC =
2015 NOWC =
Total net operating capital
2016 TOC = NOWC + Fixed assets
2016 TOC = +
2016 TOC =
2015 TOC = NOWC + Fixed assets
2015 TOC = +
2015 TOC =
Investment in total net operating capital
2016 2015
2016 Inv. In TOC = TOC TOC
2016 Inv. In TOC =
2016 Inv. In TOC =
Net operating profit after taxes
2016 NOPAT = EBIT x ( 1 – T )
2016 NOPAT = x
2016 NOPAT =
Free cash flow
2016 FCF = NOPAT Net investment in operating capital
2016 FCF =
Michael C. Ehrhardt: Change in total net operating capital (TOC) from the previous year to the current year. 2016 FCF =
Return on invested capital
2016 ROIC = NOPAT / Total net operating capital
2016 ROIC = /
2016 ROIC =
b. Assume that there were 15 million shares outstanding at the end of the year, the year-end closing stock price was $65 per share, and the after-tax cost of capital was 8%. Calculate EVA and MVA for the most recent year.
Additional Input Data
Stock price per share $65.00
# of shares (in thousands) 15,000
After-tax cost of capital 8.0%
Market Value Added
MVA = Stock price x # of shares Total common equity
MVA = x
MVA =
MVA =
Economic Value Added
EVA = NOPAT (Operating Capital x After-tax cost of capital)
EVA = x
EVA =
EVA =