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86

You will be closely concerned with these drivers, and should understand

their casual relationships. You should also understand how sensitive the

company is to each cash driver, and how variable each driver is when

subjected to either management or external influences. The first group

of drivers concerns the bulk of the preparation of the profit and loss

projections, while the second group concerns preparation of the bal-

ance sheet projections.

We now turn our attention to the first category: projecting the income

statement.

Table 4.3 shows four years of historical figures for AmaOS in spreadsheet

form, with ratios already calculated. The projection method will be illus-

trated with reference to these figures, which should be studied. AmaOS

is seeking to borrow €100 m from your bank, to be repaid in three equal

instalments starting in the second year.

Profit and loss statement projections

In setting the groundwork for preparing projections, it is useful to exam-

ine your historical spreadsheets and think carefully about the company’s

Table 4.2 Cash drivers

Profit and loss drivers include: Balance sheet drivers include:

■ Sales growth ■ Inventory turnover

■ Cost of goods sold (% of sales) ■ Accounts receivable

turnover

■ Gross profit (% of sales) ■ Accounts payable turnover

■ Selling, general and admin expenses:

SGA (% of sales)

■ Plant expenditure/capital expenditure

(% of sales)

■ Interest rates

■ Tax rates

■ Dividend payout ratio

■ Access to capital markets

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Table 4.3 AmaOS historical spreadsheet

NAME: AmaOS

LOCATION: UK

BUSINESS: Manufacturing

AUDITOR: Andersen FYE 31 DEC

CONSOLIDATED: Yes GBP 000

ASSETS 2000 2001 2002 2003

Cash 124,019 194,212 69,323 131,680

Marketable Securities

Accounts Receivable – 54,809 130,629 100,432 88,628

Trade

Accounts Receivable –

Other

Sundry Current Assets

Inventory 105,625 132,650 334,541 207,424

Raw Materials 16,360 25,367 47,099 26,162

Work in Progress 491 1,478 1,227

Finished Goods 75,664 92,354 255,644 159,880

Other 13,110 13,451 30,571 21,382

CURRENT ASSETS 284,453 457,491 504,296 427,732

Land, Buildings, Equipment 15,393 29,122 53,607 53,803

Leased Assets

Plant in Construction

Accumulated Depreciation 2,018 3,835 7,754 7,621

TOTAL OTHER GENERAL 13,375 25,287 45,853 46,182

ASSETS

Quoted Investments

Unquoted Investments 1,058 1,242 44,699 28,537

Invest in Associated

Companies

Loans to Associated

Companies

Prepaid Expenses

Sundry Assets 229 553 452

Goodwill

Other

TOTAL ASSETS 299,115 484,573 595,300 502,451

(continued)

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LIABILITIES

Bank Loans and O/Ds

Other ST Debt 27,552 111,137 148,407 99,450

CPLTD

CPLO

Customer Prepayment

Accounts Payable 8,451 10,336 37,475 41,063

Accrued Expenses 5,569 9,950 27,636 5,877

Income Tax Payable 48,076 64,654 40,455 9,059

Dividends Payable 2,726 5,678 5,684 5,643

Due to Affiliates

Sundry CL 1

Sundry CL 2

CURRENT LIABILITIES 92,374 201,755 259,657 161,092

Long Term Debt 24,848 24,848 24,848 24,848

New Debt

Subordinated Debt

Total Long Term Debt 24,848 24,848 24,848 24,848

Other Creditors

TOTAL LIABILITIES 117,222 226,603 284,505 185,940

Deferred Taxes

Minority Interest

Common Stock 52,500 52,500 52,500 52,500

Preferred Stock

Capital Surplus

Revaluation Reserve

Legal Reserve

FX – Translation Reserve

Retained Earnings 129,393 205,470 258,295 264,011

NET WORTH 181,893 257,970 310,795 316,511

TOTAL LIABILITIES & 299,115 484,573 595,300 502,451

NET WORTH

Cross-check (TA-TL) 0 0 0 0

Contingent Liabilities:

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NAME: AmaOS

LOCATION: UK

BUSINESS: Manufacturing

AUDITOR: Andersen FYE 31 DEC

CONSOLIDATED: Yes GBP 000

PROFIT & LOSS 2000 2001 2002 2003

NET SALES 525,684 645,174 638,756 614,538

Cost of Sales 349,786 397,865 429,845 438,745

Depreciation

Amortization of Goodwill

Capital Grants

GROSS PROFIT 175,898 247,309 208,911 175,793

SGA 50,644 192,622 144,302 230,791

NET OPERATING PROFIT 125,254 54,687 64,609 54,998

Net Interest Expense 1,491 1,491 1,491 1,491

Interest Income

Prov Dbt Recv

Equity Income

NPBT 123,763 53,196 63,118 56,489

Provision for Income Tax

Deferred Tax Provision

NPAT 123,763 53,196 63,118 56,489

Unusual Items:

FX Gains/Losses 17,916 9,518 30,045 59,865

Unrealized F/X Gain/Loss

Realiz Profits of Rel Co 13,363 19,752 2,340

Reval Reserve

Sundry Res

Goodwill on Consol

Unexplained Adjustment

NPAUI 105,847 76,077 52,825 5,716

Dividends – Common

– Preferred

Min Int Expense

RETAINED EARNINGS 105,847 76,077 52,825 5,716

Changes in Net Worth

Stock Sold 0 0 0

Purch Own Stock

Chg. in Cap Surplus 0 0 0

Chg. in FX Reserve 0 0 0

Chg. in Reserves 0 0 0

Other 0 0 0

INCREASE IN NET WORTH 105,847 76,077 52,825 5,716

Cross Check RE: – 0 0 0

Cross Check NW: – 0 0 0

(continued)

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