Financial Statement Analysis Report: Discounted Cash Flow Valuation

This report presents a financial statement analysis, focusing on discounted cash flow (DCF) and free cash flow (FCF) valuation methods. The analysis is divided into two main parts, the first of which uses General Mills, Inc. as a case study to illustrate the DCF valuation process. This involves calculating free cash flow, determining the discounting factor, computing present value, and estimating enterprise and equity values, alongside the book value per share and the value-to-price ratio. The second part shifts the focus to Kimberly-Clark Corporation, demonstrating the application of FCF. This includes reformulating balance sheets, calculating net operating assets, and applying different methods to compute FCF. The report includes detailed calculations, formulas, and references to support the analysis.

Running head: FINANCIAL STATEMENT ANALYSIS
Financial Statement Analysis
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1FINANCIAL STATEMENT ANALYSIS
Table of Contents
Chapter 4: A Discounted Cash Flow Valuation: General Mills, Inc...............................................2
Part A:..........................................................................................................................................2
Part B:..........................................................................................................................................3
Chapter 11: Free Cash Flow for Kimberly-Clark Corporation........................................................3
Part A:..........................................................................................................................................3
Part B:..........................................................................................................................................4
References:......................................................................................................................................5

2FINANCIAL STATEMENT ANALYSIS
Chapter 4: A Discounted Cash Flow Valuation: General Mills, Inc
Part A:
In the above case, it is assumed that the free cash flow (FCF) would remain at the same
level in 2009 after that particular year. FCF is computed by subtracting investing cash flows
from operating cash flows for the provided years (Chandra 2017). After this, the value of the
discounting factor is computed and it is multiplied with the discount rate to arrive at the total
present value (PV) until 2009. The continuing value (CV) is computed by dividing the FCF of
2009 by the discount rate. Accordingly, the calculation of PV of CV is made by dividing the CV
by the discounting factor value of 2009. Based on these values, the enterprise value (EV) is
calculated by dividing the free cash flow of each year by the discounting factor and then they are
added together with the continuing value divided by the discounting factor of the year 2009.
Since the net debt is provided, the equity value is arrived by subtracting it from EV.
Moreover, the number of outstanding shares and market value per share has been identified from
the case study. Based on such information, the book value per share is calculated by dividing the
equity value by number of outstanding shares. Finally, the value-to-price ratio is obtained by
dividing the book value per share by market value per share (Chen, Sun and Xu 2016).

3FINANCIAL STATEMENT ANALYSIS
Part B:
In this case, the new CV is computed by multiplying the above-computed CV with
addition in the CV growth rate divided by discount rate less CV growth rate. The book value per
share and price-to-value ratio is computed by following the steps mentioned in Part A above.
Chapter 11: Free Cash Flow for Kimberly-Clark Corporation
Part A:

4FINANCIAL STATEMENT ANALYSIS
For calculation of free cash flow, the balance sheet statement provided is reformulated.
The net operating assets are arrived at by subtracting operating liabilities from operating assets
(Zhou et al. 2017). In addition, the difference between financial assets and financial obligations
is computed for the years 2006 and 2007. The first method through which free cash flow is
computed is by deducting the change in net operating assets from operating income (Pinto et al.
2015). The second method used to compute the free cash flow is that the net financial expense is
subtracted from the change in net financial assets and then payout to shareholders is added.
Part B:
In this case, free cash flow is calculated with the help of the following formula:
Free Cash Flow = Operating cash flows + [Net interest payment x (1 - tax rate))] – Investing
cash flows

5FINANCIAL STATEMENT ANALYSIS
References:
Chandra, A.F., 2017. Company Size, Profitability, Tangibilitas, Free Cash Flow, And Growth
Opportunity That Affect The Capital Structure In Manufacturing Company. Jurnal Manajemen
Bisnis dan Kewirausahaan, 2(2).
Chen, X., Sun, Y. and Xu, X., 2016. Free cash flow, over-investment and corporate governance
in China. Pacific-Basin Finance Journal, 37, pp.81-103.
Pinto, J.E., Henry, E., Robinson, T.R. and Stowe, J.D., 2015. Chapter 6. Free Cash Flow
Valuation. CFA Institute Investment Books, 2015(4), pp.295-360.
Zhou, N., Shum, W.Y., Chan, S.N. and Lai, F., 2017. Credit Expansion, Free Cash Flow and
Enterprise Investment: An Empirical Study Based on Listed Companies in China. International
Journal of Economics and Finance, 9(9), p.70.