Financial Statement Analysis for Metcash

This report provides a financial statement analysis for Metcash, an Australian company that distributes and markets fresh products, groceries, hardware, beverages, and other consumable products. The report includes forecasting models, valuation models, sensitivity analysis, and management decision processes to measure the overall position of the company and make a recommendation about the investment level in the business.

Running Head: Financial Statement Analysis
1
Project Report: Financial Statement Analysis

Financial Statement Analysis
2
Contents
Introduction...................................................................................................................3
Company overview........................................................................................................3
Assumptions.................................................................................................................. 3
Forecasting................................................................................................................... 3
Sales growth.................................................................................................................4
Asset turnover ratio.......................................................................................................6
Profit margin.................................................................................................................. 7
Dividend payout ratio....................................................................................................8
Cost of debt...................................................................................................................9
Cost of equity................................................................................................................ 9
WACC......................................................................................................................... 10
Valuation..................................................................................................................... 10
Discounted dividend model.........................................................................................11
RIM............................................................................................................................. 11
ROIM........................................................................................................................... 11
FCF............................................................................................................................. 12
Sensitivity analysis......................................................................................................12
Sales growth............................................................................................................... 12
ATO............................................................................................................................. 12
PM............................................................................................................................... 13
Dividend payout.......................................................................................................... 13
NBC............................................................................................................................ 13
Management consulting advice...................................................................................14
Potential opportunity for sales.....................................................................................14

Financial Statement Analysis
3
Potential challenges for sales......................................................................................14
Analysis and recommendation....................................................................................14
Conclusion.................................................................................................................. 15
References.................................................................................................................. 16
Appendix..................................................................................................................... 17

Financial Statement Analysis
4
Introduction:
Metcash is an Australian company which distributes and markets the fresh products,
groceries, hardware, beverages and other consumable products. A financial analyst is
required to focus on the past and present financial data of the business in order to identify
that how would be the financial performance of the business so that a better decision could
be made about the strategies and other policies of the business. The financial analysis study
makes it easy for investors to get the real information and forecasting of the performance of
the business so that the investment decision could be made accordingly. A strategic decision
could be made on the basis of the financial performance and it leads the manager to a clear
conclusion (Madura, 2014). In the report, the financial analysis study has been performed on
Metcash. The forecasting models have been applied firstly on the financial statement of the
company in order to, along with that, the valuation model, sensitivity analysis and
management decision process has been studied to measure the overall position of the
company and make a recommendation about the investment level in the business.
Assumptions:
In order to forecast the future performance of a business, it is important for an analyst
to take each and every financial and non financial aspect of the business in context. It is
important for the analyst to forecast the other factors first and then make a decision about
the ultimate item. Such as, in case of measuring the forecasted profit margin level of the
business, it has been found that the analyst requires to forecasted sales and expenses of
the business first. By linking each of the forecasting items, it becomes easy for the analyst
and the investors to reach over a conclusion immediately.
Forecasting:
Forecasting is a process which takes the concern on the previous year figures and
the present factors of the business to measure about the future changes in a business. It is
important for a business to measure all the relevant changes and make the decision about
the forecasting accordingly.
Sales growth:
Sales growth is one of the most important factors to measure and evaluate in order to
find the future changes and performance of a business. There are various factors which
could influence the sales level of the Metcash such as foos demands, liquor demand,
inflation rate, GDP etc. During the financial year 2017, the sales growth of the comapny was
highest because of strong sells in the liquor and acquisition of the hardware company.

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5
Though, in the year of 2018, the growth rate has been decreased because the Metcash hard
competition in the food sector with Woolworths, Wesfarmers and Aldi and inflation rate has
also affected the sales of the business.
Food:
The food sales of Metcash limited has been reduced by 1.4% because of the prices
cut by Woolworths and Coles. The food sales of Metcash has also been affected because of
the Darkes Supermarket, who is one of the largest client of Metcash because of the lower
demand from the market. However, few changes have been made by Metcash limited to
improve the demand and turnover of food. The store of Metcash has deleted 6000 products
from the warehouse and added 2900 new products to attract more customers. Ready meals
are also offered by the company in order to improve the sales of the business.
Liquor:
Liquors are provided by Metcash limited in two divisions which are Independent
brand Australia and Australian liquor markets. The reports explain that the demand of liquor
has been increased to 5.7%. because of the acquisition of Porters liquor. Metcash limited
has also various opportunities which could improve the sales at huge level in near future
such as provide premium products, improvement in the wholesale sales, sales through IBA
network etc.
Hardware:
In case of Hardware performance, the demand of Metcash limited has been
improved at great extent. The changes have taken place because of the synergies. The
forecasting level explains that in near future, the hardware sales would be improved more.
Metcash limited could grab the various opportunities such as it could support independent
retailers, reduce the wholesale price etc to improve the demand of products.
Logistics:
the logistic demand would be improved along with the changes in the market and the
changes in the sustainable growth and cost structure of Metcash limited.
Below given figure explains that how much changes have occurred into the sales
level of the company from 2017 to 2018.

Financial Statement Analysis
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Resultsoverviewbypillar
FY18 FY17 %
$m $m Change
Sales revenue
Food 8,899.6 9,011.4 (1.2%)
Liquor 3,465.5 3,278.5 5.7%
Hardware1 2,098.6 1,578.5 33.0%
Total sales revenue (52 trading weeks) 14,463.7 13,868.4 4.3%
53rd trading week - 253.5 -
Total sales revenue 14,463.7 14,121.9 2.4%
EBIT2
Food3 188.6 188.1 0.3%
Liquor 68.4 67.0 2.1%
Sales revenue (%)
14%
Food
62%
Liquor 24%
Hardware
EBIT (%)
21%
Hardware4 69.0 48.5 42.3%
Business Pillars 326.0 303.6 7.4%
Food
Liquor 58%
Corporate5 6.7 1.2 -
Total EBIT 332.7 304.8 9.2%
21%
Hardware
Figure 1: Sales overview
(Yahoo finance, 2018)
On the basis of the food, liquor and hardware, it has been measured that the sales
growth forecast of the company would be 2.5% in the year of 2019, 2020 and 2021 which
would be reduced to 2% in next 2 years. The changes would occur into the business
because of the pressure from the industry and the changes into the various external factors
of the business. Insider retail (2018) explains that the food sales of the business would be
half dropped in the near future. However, the increased demands of the liquor would
compensate that and the sales of the company would be growing up by 2.5% only. As well
as, it has been measured that the logistic and hardware sales of the business would be
improved at great level which would manage the lower demand of other products of the
company. It has also been estimated that the changes into the inflation rate, population’s
growth and the GDP would affect the sales level of the business.

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Figure 2: Sales growth rate
(Insider retail, 2018)
The inflation rate changes have been studied further and it has been found that the
inflation rate of the country and international level would be changed at a great level and it
would affect the overall performance of the business. However, it has been found on the
basis of the below figure that the global inflation rate would be reduced to 3.07% which
would improve the overall sales demand of the company but the competition and aggressive
expansion of coal and Wesfarmers would affect the sales demand of the business and thus
the sales of the company would be reduced to 2% in the year of 2022 and 2023.
Figure 3: Inflation rate

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(Statista, 2018)
Further, the population growth and the GDP of the country has been forecasted in
order to identify the consumption level and the performance if the business. the study
explains that the population of the country would be almost similar because of the lower birth
rate and in case of GDP, it has been estimated that the GDP rate of the country would be
lower in the year of 5.8% but because of the lower market share of the company, the sales
level of the business would not be affected much.
2018 2019 2020 2021 2022
Forecasted
GDP
6.3% 6.2% 6.0% 5.8% 5.5%
(Statista, 2018)
On the basis of the overall study on the previous data of the sales growth and the
current changes, it has been estimated that the sales of the business would be grown at a
lower rate in next 5 years.
Asset turnover ratio:
Asset turnover ratio has further been forecasted in order to measure the total sales of
the business against the available resources at a particular time (Higgins, 2012). The ATO
ratio measures the overall efficiency level of the business. On the basis of the previous data
of the company, it has been studied that the ATO of the business was highest in the year of
2018 because ATO depends on sales revenue and net operating assets. In 2018, sales
operating assets decreased due to the intangible assets and goodwill.
The changes have occurred because of the demand from Drakes Supermarkets and
the changes in the carrying value of the assets. Around $ 1 million has been charged as
impairment on goodwill and other food pillars. Because of item the company has ked to
statutory loss worth $ 149.5 million.

Financial Statement Analysis
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Figure 4: ATO
(Appendix 1)
On the basis of the above figure, the forecasting level of ATO in year 2019 and 2020
would be higher because such kind of asst impairment and other activities are not expected
in the future. the ATO level would be decrease slightly because of the decrement in the
sales level. Further, it has been estimated that the decrement in the ATO level describes that
the company has reduced the efficiency level and due to which the sales level of the
company has been decreased on the basis of the available sales.
Company could reduce the level of the resources and assets on the basis of the
demand of the products in order to manage the efficiency level of the business. It improves
the overall performance of the business. The few changes into the assets level and the
strategies of the business would improve the performance of the business.
Profit margin:
Further, along with the sales volume, sales demand etc, the profitability margin level
of the business has been studied. The profit margin level of the Metcash explains that the
profitability margin level of the company has been fluctuated at great level in last 5 years.
According to the annual report and income statement in 2015, 2017 and 2018, NOPAT level
has been decreased because of the significant item’s impairment. So, it is important to take
the concern on the impairment test and the losses of the business.
Various changes have occurred into the profitability margin level of the business
because of the higher operating expenses (Appendix), changes into the sales figures, affect
of the inflation rate and GDP on the business etc. As well as, it has been found that in order

Financial Statement Analysis
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to manage the cost leadership pricing strategy (the lowest cost in the market to improve the
market share), the company has to reduce the margin % (Higgins, 2012). In last 5 years,
from 2013 to 2018, the profit margin of the company was reduced by 0.9% because of the
changes in the demand of food, liquor and prices of Metcash limited.
Figure 5: Forecasted PM
(Appendix 1)
It has been forecasted that the profit margin level of the business would be fluctuated
from the year of 2019 to 2023 among the 1.5% to 1.8%. The PM ratio describes that in the
recent years (2019, 2020 and 2021) the profitability margin level of the business would be
improved because of the various changes and opportunities grabbed by the business in
order to improve the sales and meet the overall objective of the business. But after the
reduction in the sales volume, market share and customer loyalty of the business would also
be affected which would ultimately reduce the profitability margin in 2022 and 2023 of the
business (Lord, 2007).
Further, it has also been studied that the changes have also occurred because of the
aggressive expansion of the sales of Coals and Wesfarmers limited. In order to manage the
market share and become a leader in the market, the firm has reduced the sales price and
the margin of the company. Though, the margin position of the company would be better
from the previous 5 years of the company.
Dividend payout ratio:
Dividend payout ratio defines about the total payment of business to the
shareholders against their invested fund as the name of dividend. It evaluates the total paid

Financial Statement Analysis
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amount against the total profit of the business. Increment in the NOPAT improves the FCF
level of the business which is driven by the total profit kevel and the sales of the company.
Through conducting the study on Metcash, it has been found that the dividend payout ratio
of the company has been lower in the year of 2018 at great extent because of the reduction
in net income. the decrement has occurred because of the loss of Drake contract.
2014 2015 2016 2017 2018
Dividend 207.1 55.9 1.4 1.3 105.3
Dividend payout
Ratio =Dividend
paid /Net Income 95.76%
-
16.52% 0.57% 0.67%
-
84.24%
(Appendix 1)
Figure 6: Leverage
On the basis of the future study on forecasting level, it has been measured that
dividend payout ratio of the company would be 60% in 2019 and 2020 and 70% in next 3
years because management prefer to keep actual div up, not down. Year 2020 has good
forecast so div ratio can stay the same at 60%, later yrs have less positive forecast but need
to keep div up so 70% is reasonable. Also, from 2021 forecasts are stabilised so the rate of
70% can stay unchanged.
The company is looking forward to make better position in the capital market in order
to improve the investment and stock price of business. These changes into the dividend
payout ratio would make it easier for the business to improve the stockholder’s interest in the
business.

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2019 2020 2021 2022 2023
Forecast net dividend payout
ratio
-84.24% 60% 60% 70% 70% 70%
(Appendix 1)
Cost of debt:
Further, the cost of debt level of the business has been studied in order to evaluate
that how much cost would be spent by the company in order to manage the funds from the
debenture holders of the business. The cost of debt level of the business explains that the
cost of debt of the business is 13.5%. It explains that the level of cost of debt of the business
is quite higher and it would lead to the business towards the huge cost level. In order to
manage this much of cost, the business has to invest in those projects and investment
proposal, where the cost of debt of the business is lower (Higgins, 2012). The cost of debt
level of the Metcash is even higher than the Reserve Bank of Australia’s interest rate which
explains that the few requirements are required in the business in order to manage the cost
level.
Cost of equity:
After measuring the level of cost of debt, the other cost of the company related to the
equity of the business. the beta factor explains about the fluctuations in the stock price of the
company in a particular time period.
On the basis of the below given table, it has been measured that the risk free rate if
Australia is 2.77%, the market risk premium of Australian capital market is 5% and the
systematic risk of Metcash limited is 1.23 which leads to the study that the total return which
could be expected by the investors from the company is 8.92% (Bloomberg, 2018). It
expresses that the total cost for the equity of the company would be 8.92%.
Cost of equity Calculations:
Risk- free return rate 2.77%
Market Risk Premium 5.00%
Beta of Metcash 1.23
Estimated Cost of Capital for equity (RE)
CAPM 8.9200%
(Bloomberg, 2018)
WACC:

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On the basis of the calculated cost of debt and cost of equity, it has been found that
the weighted average cost of capital of the company is 9.13% which is quite higher and
explains that the company has to invest into those projects which would offer more than
9.13% return to the company.
Cost of debt (RD) 13.52%
NFO 127
MVe 2,655
Estimated Cost of Capital for firm
(WACC) 9.13%
Valuation:
After forecasting the financial performance, position and cash flow level of the
business, the valuation analysis method has been applied in order to identify the intrinsic
value of the stock and compare it with the market value of the stock that whether the
company is enough capable to maintain the stock price in the market or the stock of
company is overvalued. In order to measure the value of the stock, 4 valuation model has
been applied which would be studied below.
Discounted dividend model:
Dividend discount model has been applied firstly in order to identify the actual worth
of the stock. This model mainly concentrates on the dividend paid by the company to
measure the stock price of the company. It is one of the most used valuation model because
of the interest on dividends by shareholders. DDM is simplest model to identify the present
value of the expected dividend. In the model, it has been estimated the dividend amount of
the company would be variable and it would differ on the basis of the market fluctuations and
demand of the stock in the market. The perpetuity growth rate of the company is 2%
(Appendix 2).
In order to identify the worth of the stock, 5 years dividend amount has been
forecasted and on the basis of those figures, it has been measured that the total stock value
of the company should be $ 2.55 whereas the stock worth of Metcash on 8th Oct 2018 is $
2.92 which explains that the stock price of the company is overvalued in the market.
RIM:

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Residual income model has been applied further in order to identify the actual worth
of the stock. This model is different from other model because it taken the concern on the
capital cost. it uses the accrual accounting base and financial statement to identify the stock
price of the company which makes it different from other valuation models.
In order to identify the worth of the stock, 5 years net income and operating income
have been forecasted and on the basis of those figures, it has been measured that the total
stock value of the company should be $ 2.10 whereas the stock worth of Metcash on 8th Oct
2018 is $ 2.92 which explains that the stock price of the company is overvalued in the
market (Market.ft.com, 2018).
ROIM:
Further, residual operating income model has been applied in order to identify the
actual worth of the stock. This model mainly concentrates on the NOPAT, NOA etc. to
measure the stock price of the company. In the model, the operating profit after tax is
concentrated which makes it different from other valuation model. it is most accurate model
because of the WACC and CAPM level of the business. The perpetuity growth rate of the
company is 2%.
In order to identify the worth of the stock, 5 years NOPAT, NOA etc have been
forecasted and on the basis of those figures, it has been measured that the total stock value
of the company should be $ 2.83 whereas the stock worth of Metcash on 8th Oct 2018 is $
2.92 which explains that the stock price of the company is overvalued in the market (Yahoo
finance, 2018).
FCF:
the free cash flow model uses the investment, operations and WACC level of the
business. It considers the investment as an expenses in order to identify the cash level of
the business. It is different from other valuation model because of its focus on the cash level
only. The perpetuity growth rate of the company is 2% (Higgins, 2012).
In order to identify the worth of the stock, 5 years FCF level has been forecasted and
on the basis of those figures, it has been measured that the total stock value of the company
should be $ 2.83 whereas the stock worth of Metcash on 8th Oct 2018 is $ 2.92 which
explains that the stock price of the company is overvalued in the market.
As seen in the below figure, the residual operating income model is most accurate
valuation model whereas the FCF model explains about the largest deviation from the
market value.

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Figure 7: Valuation model
Sensitivity analysis:
The sensitivity analysis has been further conducted on the residential operating
income model. In this method, all the independent variable has been changed in order to
measure the impact on the dependent variable. The main objectives of this method is to
identify the stock price if any changes would take place in NOPAT and NOA level than at
what level, the stock price of the business would be changed.
Sales growth:
Firstly, the changes into the sales growth have been done to identify the impact on
the stock price of the company. Optimistic and pessimistic worth has been focused in this
model. On the basis of optimistic case, if the sales growth would be improved by 15% than
the stock price of the business would be $ 2.81 whereas in pessimistic case, if the sales
growth would be reduced by 15% than the stock price of the business would be $ 2.65
(Appendix 3). The normal case stock price is $ 2.73. It expresses that the changes into the
sales growth would impact average on the stock price of the company.
ATO:
Further, the changes into the ATO have been done to identify the impact on the stock
price of the company. Optimistic and pessimistic worth has been focused in this model. On
the basis of optimistic case, if the ATO would be improved by 15% than the stock price of the
business would be $ 3.04 whereas in pessimistic case, if the sales growth would be reduced
by 15% than the stock price of the business would be $ 2.31. The normal case stock price is
$ 2.73 (Appendix 3). It expresses that the changes into the ATO level would impact at huge
level on the stock price of the company.
PM:

Financial Statement Analysis
16
Additionally, the changes into the profit margin have been done to identify the impact
on the stock price of the company. Optimistic and pessimistic worth has been focused in this
model. On the basis of optimistic case, if the PM would be improved by 15% than the stock
price of the business would be $ 3.28 whereas in pessimistic case, if the sales growth would
be reduced by 15% than the stock price of the business would be $ 2.17. The normal case
stock price is $ 2.73. It expresses that the changes into the profit margin level would impact
at huge level on the stock price of the company (Appendix 3).
Dividend payout:
Furthermore, the changes into the dividend payout have been done to identify the
impact on the stock price of the company. Optimistic and pessimistic worth has been
focused in this model. On the basis of optimistic case, if the dividend payout would be
improved by 15% than the stock price of the business would be $ 2.73 whereas in
pessimistic case, if the sales growth would be reduced by 15% than the stock price of the
business would be $ 2.73. The normal case stock price is $ 2.73 (appendix 3). It expresses
that the changes into the dividend payout would not affect the stock price at all.
NBC:
Lastly, the changes into the NBC have been done to identify the impact on the stock
price of the company. Optimistic and pessimistic worth has been focused in this model. On
the basis of optimistic case, if the NBC would be improved by 15% than the stock price of
the business would be $ 2.73 whereas in pessimistic case, if the sales growth would be
reduced by 15% than the stock price of the business would be $ 2.73. The normal case
stock price is $ 2.73 (Appendix 2). It expresses that the changes into the NBC would not
affect the stock price at all.
It explains that the main factor which affects the stock price of the company is asset
turnover ratio and profit margin ratio. If these factors would be controlled by the business
than the stock price level would be improved.
Management consulting advice:
After evaluation on the sensitivity analysis, it has been found that the main factor
which affects the stock price of the company is asset turnover ratio and profit margin ratio. If
these factors would be controlled by the business than the stock price level would be
improved. In order to manage these factors in Metcash limited, following opportunities could
be grabbed by the business. However, few of the challenges could also be faced by the
business on the basis of that.

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Potential opportunity for sales:
 Company could diversify the product sales in order to improve the sales turnover and ATO
and PM level of the business.
 The new venture could be started by the business (Lord, 2007).
 Diversification at international level is also one of the opportunities which could be grabbed
by the business.
 Changes into the marketing strategies would also help the business to improve the sales
turnover and ATO and PM level of the business.
Potential challenges for sales:
 Increment at the international taxes and duties are one of the major challenges in the
business.
 Labour expenses, marketing expenses, raw material etc expenses are always variable in
nature and affect the PM level of the business (Kaplan and Atkinson, 2015).
 The competition level of the company is also higher in the market because of Coles limited
and Wesfarmers limited.
Analysis and recommendation:
On the basis of the above opportunities and threat, it has been realised that the few
changes into the strategies of the business would lead the overall performance of the
business and the company would be able to meet the forecasting level. the changes in the
cost leadership strategies and pursuing differentiation, it has been measured that the
changes would help the Metcash limited to improve the overall performance. The company
should improve the research and development process of the business to forecast the other
opportunities and improve the sales turnover, ATO and PM level of the business.
If the above stated challenges would be controlled by the business than the overall
PM level, sales level and ATO level of the business would be improved.
Conclusion:
To conclude, Metcash limited’s performance is tend to decrease in current scenario.
Few changes into the strategies and policies would improve the overall performance of the
business as well as it would help the business to improve the overall PM level, sales level
and ATO level of the business. The challenges level could also be reduced by the business
through implementing the new strategies.

Financial Statement Analysis
18
References:
Bloomberg.com. 2018. Australian Rates & Bonds. [online] Available at:
https://www.bloomberg.com/markets/rates-bonds/government-bonds/australia [Accessed 15
Oct 2018].
Higgins, R. C., 2012. Analysis for financial management. McGraw-Hill/Irwin.
Home. 2018. Metcash limited. [online] Available at: https://www.metcash.com/ [Accessed 15
Oct 2018].
Insider retail. 2018. Metcash Ltd: Food sales. [online] Available at:
https://www.insideretail.com.au/news/food-blip-for-metcash-as-hardware-builds-revenue-
201712
Insider retail. 2018. Metcash Ltd: Impairment on grocery. [online] Available at:
https://www.insideretail.com.au/news/metcash-to-book-352-million-impairment-on-grocery-
weakness-201806
Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI Learning.
Lord, B.R., 2007. Strategic management accounting. Issues in Management Accounting, 3
(2) p.p. 32.
Madura, J. 2014. Financial Markets and Institutions. Cengage Learning.
Markets.ft.com. 2018. Metcash Ltd, BKL:ASX profile - FT.com. [online] Available at:
https://markets.ft.com/data/equities/tearsheet/profile?s=MTS:ASX [Accessed 15 Oct 2018].
Statista. 2018. Global inflation rate 2012-2022 | Statista. [online] Available at:
https://www.statista.com/statistics/256598/global-inflation-rate-compared-to-previous-year/
[Accessed 15 Oct 2018].
Yahoo finance. 2018. Metcash limited/ history. [online] Available at:
https://au.finance.yahoo.com/quote/MTS.AX/history/ [Accessed 15 Oct 2018].

Financial Statement Analysis
19
Appendix:
Forecast for Metcash Limited
Forecast for Metcash Limited
Actua
l
Forec
ast
Forec
ast
Forec
ast
Forec
ast
Forec
ast
2018 2019 2020 2021 2022 2023
0 1 2 3 4 5
1. Forecast sales
Sales growth rate - estimated 2% 2.5% 3.0% 3.0% 2.5% 2.5%
Sales
$14,4
63.70
$14,8
25.29
$15,2
70.05
$15,7
28.15
$16,1
21.36
$16,5
24.39
2. Forecast ATO and caculate
NOA
Forecast ATO $8.64 $8.80 $8.80 $8.70 $8.70 $8.70
Caculate NOA (NOA = Sales/ATO
$1,51
5.80
$1,68
4.69
$1,73
5.23
$1,80
7.83
$1,85
3.03
$1,89
9.36
3. Revise sales forecasts
4. Forecast PM and calculate
NOPAT
Forecast PM
-
0.86% 1.70% 1.80% 1.70% 1.50% 1.50%
Caculate NOPAT (NOPAT = Sales *
PM)
-
$125.
00
$252.
03
$274.
86
$267.
38
$241.
82
$247.
87
5. Forecast any other operating
income (unusual items ) 0 0 0 0 0 0
6. Caculate free cash flow
(NOPAT - change in NOA)
Change in NOA
$168.
89
$50.5
4
$72.6
0
$45.2
0
$46.3
3
Caculate FCF
$83.1
4
$224.
32
$194.
78
$196.
62
$201.
54
7. Forecast net dividend payout
ratio
-
84.24
% 60% 60% 70% 70% 70%

Financial Statement Analysis
20
Estimated as a % of NOPAT
$105.
30
$151.
22
$164.
92
$187.
17
$169.
27
$173.
51
8. Calculate net payments to debt
holders
Payments = FCF - dividend
-
$68.0
8
$59.4
0 $7.61
$27.3
5
$28.0
3
9 Forecast cost of debt and debt
balance
Forecast cost of debt after tax
13.52
%
11.00
%
10.00
% 8.00% 7.50% 7.50%
Opening debt balance
$193.
90
$127.
20
$209.
27
$170.
80
$176.
85
$162.
76
Caculate cost of debt (net financing
after tax)
$13.9
9
$20.9
3
$13.6
6
$13.2
6
$12.2
1
Caculate closing debt (opening +
interest - repayment)
$127.
20
$209.
27
$170.
80
$176.
85
$162.
76
$146.
93
Check leverage (debt / NOA ratio) 8% 12% 10% 10% 9% 8%
10. Calculate comprehensive
income NOPAT - NFEat
-
$145.
80
$238.
04
$253.
93
$253.
71
$228.
56
$235.
66
11. Calculate equity
OE = NOA - NFO
$1,38
8.60
$1,47
5.42
$1,56
4.44
$1,63
0.99
$1,69
0.27
$1,75
2.42
Closing OE = Opening OE + NI -
DIV
$1,38
8.60
$1,47
5.42
$1,56
4.44
$1,63
0.99
$1,69
0.27
$1,75
2.42
2. Valuation model:
Discounted Dividend Model

Financial Statement Analysis
21
Value Forecast Forecast Forecast Forecast Forecast
Year 2018 2019 2020 2021 2022 2023
0 1 2 3 4 5
1. Forecast net dividend payout 105.3 151.218 164.9166 187.165 169.2742 173.5061
2. Estimate cost of capital for equity 0.0892 1.0892 1.186357 1.29218 1.407442 1.532986
3. Calcuate forecast dividend
growth patterns 44% 9% 13% -10% 3%
estimate TV method - perpetuity with
growth 2%
4. Calculate TV = Div(t+1) / (re - g) 2557.46
5. Discount dividend stream to TV
year (2020) 656.14 138.834 139.0109 144.8444 120.2708 113.1818
Discount TV 1668.3 1668.287
Equity value 2324.4
Number of shares outstanding 909.26
Estimated Share Price 2.5564
Residual Income Model Value Forecast Forecast Forecast Forecast Forecast
2018 2019 2020 2021 2022 2023
Year 0 1 2 3 4 5
1a. Forecast NI -145.8 238.038 253.9337 253.7149 228.5569 235.6589
1b. Forecast OE 1388.6 1475.42 1564.437 1630.987 1690.27 1752.422
2. Estimate Cost of Capital For
Equity 0.0892 1.0892 1.186357 1.29218 1.407442 1.532986
3. Calculate residual income 114.1749 122.3262 114.1671 83.07281 84.88682

Financial Statement Analysis
22
3. Calculate forecast RI growth
patterns 7% -7% -27% 2%
4. Calculate TV 170.8363
5. Discount RI 410.6852 104.8245 103.1108 88.35237 59.02396 55.37351
Discount TV 111.4402 111.4402
Equity value 1910.725
Number of shares outstanding 909.26
Estimated Share Price 2.101407
Residual Operating Income
Model Value Forecast Forecast Forecast Forecast Forecast
2018 2019 2020 2021 2022 2023
Year 1 2 3 4 5
1a. Forecast NOPAT -125 252.03 274.861 267.379 241.82 247.866
1b. Forecast NOA 1,516 1,685 1,735 1,808 1,853 1,899
Book value of debt 127
2. Estimate cost of capital for the
firm 9.13% 1.09 1.19 1.30 1.42 1.55
3. Calculate residual operating
income 114 121 109 77 79
3. Calculate forecast ROI growth
patterns 6.5% -10.0% -29.5% 2.5%
4. Calculate TV 1,216
5. Discount ROI to TV year

Financial Statement Analysis
23
395 104 102 84 54 51
Discount TV 786 786
Total value of the firm 2,696.23
Value of NFO 127
Total value of equity 2,569
Number of shares outstanding 909
Estimated Share Price 2.83
Free Cash Flow Model Value Forecast Forecast Forecast Forecast Forecast
2018 2019 2020 2021 2022 2023
Year 1 2 3 4 5
1. Forecast FCF 83.13764 224.3202 194.778 196.6245 201.54012
Debt (NFO) 127
2. Estimate cost of capital for
the firm 9.13% 1.09 1.19 1.30 1.42 1.55
3. Calculate forecast FCF growth patterns 169.8% -13.2% 0.9% 2.5%
to determine TV
4. Calculate TV 3,116
5. Discounted FCF 683 76 188 150 139 130
Discounted TV 2,013 2,013

Financial Statement Analysis
24
Total value of the firm 2,696
NFO 127
Total value of equity 2,569
Number of shares outstanding 909
Estimated Share Price 2.83
3. Sensitivity analysis:
Table 2: Sensitivity on Residual Operating Income
Model
Share price (08/10/2018) $2.92 ROIM Share price $2.73
Optimistic Pessimistic
Forecast Share price Forecast Share price
Sales growth (+/-15%) 15.0% $2.81 -15.0% $2.65
ATO (+/-15%) 15.0% $3.04 -15.0% $2.31
PM 15.0% $3.28 -15.0% $2.17
Div. payout 15.0% $2.73 -15.0% $2.73
NBC 15.0% $2.73 -15.0% $2.73
CAPM -15% $3.19 15.0% $2.37