Panda Burger, Inc. Pro Forma Financial Statement Analysis 2015-2019

This financial analysis report provides a detailed pro forma analysis for Panda Burger, Inc. from 2015 to 2019. It includes hypothetical assumptions regarding sales growth, cost of goods sold (COGS), operating expenses, depreciation, interest expenses, and tax rates to forecast the income statement and balance sheet. The analysis incorporates ratio computations such as Return on Equity (ROE), Return on Net Operating Assets (RNOA), profit margin, and turnover days for accounts receivable, inventory, accounts payable, and PPE. The report also presents a free cash flow unlevered valuation, discounting future cash flows using a Weighted Average Cost of Capital (WACC) of 10% to arrive at a share value, utilizing the 'Goalseek' function in Excel to achieve a target share price of $700. Desklib offers a wide range of similar solved assignments and past papers for students.

Running head: ACCOUNTING FINANCIAL ANALYSIS REPORT
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1ACCOUNTING FINANCIAL ANALYSIS REPORT
Table of Contents
Assumptions...............................................................................................................................2
Income statement...................................................................................................................2
Balance sheet..........................................................................................................................2
Ratio computation..................................................................................................................3
Free cash flow........................................................................................................................3
Reference....................................................................................................................................5

2ACCOUNTING FINANCIAL ANALYSIS REPORT
Assumptions
Income statement
Based on the growth rate in sales for past years it is expected that for next 2 years that
is for the year ended 2015 and 2016 the sales will be increased by 30% and in 2017 it will be
increased by 32%, in 2018 and 2019 it is expected to be increased by 33% and 35%
consecutively. Growth rate is hypothetical and assumed on the basis that with growth in
economies, sales will also increase in the coming years. Keeping pace with the increase in
sales, COGS will be increased to 65% in 2015 and 2016 and 70% in 2017, 2018 and 2019.
Other expenses including selling general and admin expenses and pre-operating cost will be
increased keeping in pace with the increase in sales. Depreciation expenses will be increased
with acquisition of new asset (PPE) and interest expenses will be increased with acquisition
of new borrowing. Further, the tax rates for all the years will be consistent at 39%.
Balance sheet
Cash and equivalent balance has been computed through cash flow statement taking
into consideration cash from operation including adjustments for depreciation and working
capital, cash used in investing activities including expenses for CAPEX and short term as
well as long term investment and cash generated from financing activities including fund
acquired through new borrowing. Part of an increased earning is invested in short term as
well as long term investment. Amount for account receivables has been changed due to
collection of old dues from debtors as per the credit terms allowed and generation of new
receivables from credit sales made during the period. Inventory has been increased with the
increased production and sales. The business purchased new PPE in each year under
consideration and based on the addition in PPE accumulated depreciation also went up.
Amount of goodwill will not change for any of the years and the old goodwill will be

3ACCOUNTING FINANCIAL ANALYSIS REPORT
maintained by the business. Amount for account payables has been changed due to payment
of old payables to creditors as per the credit terms allowed by them and generation of new
payables from credit purchases made during the period. Amount of long term debt has been
changed due to acquisition of new borrowing.
Ratio computation
 ROE or return on equity has been computed through dividing the net profit by the
amount of shareholder’s equity
 RNOA or return on net operating asset has been computed through dividing the net
profit by the amount of net operating asset (Uechi et al. 2015).
 Profit margin has been computed through dividing the net profit by the amount of
total revenues. It has been shown in percentage form.
 Accounts receivables turnover days has been computed through dividing number of
days in period that is 365 by receivable turnover (Penman 2015)
 Inventory turnover days has been computed through dividing number of days in
period that is 365 by inventory turnover
 Accounts payable turnover days has been computed through dividing number of days
in period that is 365 by payable turnover
 PPE turnover has been computed through dividing amount of revenue by amount of
PPE (Dicle and Meyer 2018).
Free cash flow
Free cash flow unlevered valuation has been computed as follows –
Cash from operation + after tax interest expenses – cash used for investing activities (Velez-
Pareja 2016)

4ACCOUNTING FINANCIAL ANALYSIS REPORT
Present value of FCFV has been computed through using the discounting rate that is
the WACC of 10%. It is assumed that the growth rate is 8.627% at which the share value will
be $700 per share. Growth rate has been computed through using ‘Goalseek’ formula in
excel. Goalseek has been used for arriving at the share price of $ 700 as given in the question.

5ACCOUNTING FINANCIAL ANALYSIS REPORT
Reference
Dicle, M.F. and Meyer, J., 2018. Financial Statement and Ratio Analysis: A Classroom
Perspective.
Penman, S.H., 2015. Financial Ratios and Equity Valuation. Wiley Encyclopedia of
Management, pp.1-7.
Uechi, L., Akutsu, T., Stanley, H.E., Marcus, A.J. and Kenett, D.Y., 2015. Sector dominance
ratio analysis of financial markets. Physica A: Statistical Mechanics and its
Applications, 421, pp.488-509.
Velez-Pareja, I., 2016. Return to basics: cost of capital depends on free cash flow.