WALL STREET PREP - FINANCIAL MODELING QUICK LESSON - BUILD

Valuation Date: 1/1/2013

Share Price on Valuation Date: $25.00
Diluted Shares Outstanding 500.0

Select Operating Data

Projecte
2010A 2011A 2012A 2013P
Revenue $5,300.0 $5,700.0 $6,000.0 $6,600.0
Revenue Growth Rate (%) 10.0%

EBITDA $2,000.0 $2,080.0 $2,150.0 $2,310.0

EBITDA Margin (%) 35.0%

EBIT 1,700.0 1,750.0 1,800.0 $1,980.0

EBIT Margin (%) 30.0%

Depreciation & Amortization $300.0 $330.0 $350.0 $369.6

D&A as a % of revenue 5.6%

Select Balance Sheet And Other Data

Projecte
2010A 2011A 2012A 2013P
Cash $700.0 $1,000.0 $1,500.0 1,500.0
Accounts Receivable 1,100.0 1,250.0 1,350.0 1,485.0
Inventories 900.0 925.0 935.0 949.0
Prepaid Expenses 50.0 63.0 75.0 89.7

Accounts Payable $930.0 $960.0 $1,000.0 $1,015.0

Accrued Expenses 90.0 88.0 93.0 102.3

Debt 2,300.0 4,750.0 4,250.0 4,250.0

Capital Expenditures 455.0 488.0 535.0 588.5

Accounts Receivable Growth (%) 10.0%

Inventories Growth (%) 1.5%
Prepaid Expenses Growth (%) 19.6%
Accounts Payable Growth (%) 1.5%
Accrued Expenses Growth (%) 10.0%
Capital Expenditures Growth (%) 10.0%

Free Cash Flow Buildup

$mm Projecte
2010A 2011A 2012A 2013P
Period 1
Total Revenues
EBITDA
EBIT
Tax rate 40.0%
EBIAT
Depreciation & Amortization
Accounts receivable
Inventories
Prepaid expenses
Accounts payable
Accrued expenses
Capital expenditures
Unlevered free cash flows
Discount Rate (WACC)
Present value of free cash flows
Sum of present values of FCFs

Terminal Value
Growth in perpetuity method:
Long term growth rate 4.0%
WACC
Free cash flow (t+1)
Terminal Value
Present Value of Terminal Value

WACC
Share Price
Diluted Shares Outstanding
Cost of Debt 5.2%
Tax Rate 40.0%
After-tax Cost of Debt
Cost of Equity 15.0%

Total Debt ($)

Total Equity ($)
Total Capital

Debt Weighting
Equity Weighting

WACC =

Enterprise Value to Equity Value

Enterprise Value
Less: Net debt
Equity Value
Diluted Shares Outstanding
Equity Value Per Share

Q: If the stock is trading at $25.00 a share and you believe that your DCF analysis is accu
LESSON - BUILDING A SIMPLE DISCOUNTED CASH FLOW MODEL

Projected Annual Forecast

2014P 2015P 2016P 2017P
$7,326.0 $8,205.1 $9,271.8 $10,477.1
11.0% 12.0% 13.0% 13.0%

$2,564.1 $2,871.8 $3,245.1 $3,667.0

35.0% 35.0% 35.0% 35.0%

$2,197.8 $2,461.5 $2,781.5 $3,143.1

30.0% 30.0% 30.0% 30.0%

$388.3 $336.4 $435.8 $461.0

5.3% 4.1% 4.7% 4.4%

Projected Annual Forecast

2014P 2015P 2016P 2017P
1,500.0 1,500.0 1,500.0 1,500.0
1,648.4 1,846.2 2,086.2 2,357.4
1,001.2 1,092.3 1,200.5 1,319.3
106.5 123.1 139.1 160.4

$1,070.8 $1,168.3 $1,283.9 $1,411.0

113.6 127.2 143.7 162.4

4,250.0 4,250.0 4,250.0 4,250.0

653.2 731.6 826.7 934.2

11.0% 12.0% 13.0% 13.0%

5.5% 9.1% 9.9% 9.9%
18.7% 15.6% 13.0% 15.3%
5.5% 9.1% 9.9% 9.9%
11.0% 12.0% 13.0% 13.0%
11.0% 12.0% 13.0% 13.0%

Projected Annual Forecast

2014P 2015P 2016P 2017P
2 3 4 5
40.0% 40.0% 40.0% 40.0%
DCF analysis is accurate, would you buy or sell stock in this company? Why?
MODEL
WALL STREET PREP - FINANCIAL MODELING QUICK LESSON - BUILD
Valuation Date: 1/1/2013
Share Price on Valuation Date: $25.00
Diluted Shares Outstanding 500.0

Select Operating Data

Projecte
2013A 2014A 2015A 2016P
Revenue $2.7 $14.7 $13.2 $14.5
Revenue Growth Rate (%) 10.0%

EBITDA $51.6 $47.3 $75.5 $5.1

EBITDA Margin (%) 35.0%

EBIT 57.0 51.4 80.4 $4.3

EBIT Margin (%) 30.0%

Depreciation & Amortization $5.4 $4.1 $4.9 $0.8

D&A as a % of revenue 5.6%

Select Balance Sheet And Other Data

Projecte
2010A 2011A 2012A 2013P
Cash $700.0 $1,000.0 $1,500.0 1,500.0
Accounts Receivable 1,100.0 1,250.0 1,350.0 1,485.0
Inventories 900.0 925.0 935.0 949.0
Prepaid Expenses 50.0 63.0 75.0 89.7

Accounts Payable $930.0 $960.0 $1,000.0 $1,015.0

Accrued Expenses 90.0 88.0 93.0 102.3

Debt 2,300.0 4,750.0 4,250.0 4,250.0

Gross PP&E (increases annually be ca 455.0 488.0 535.0 588.5

Accounts Receivable Growth (%) 10.0%

Inventories Growth (%) 1.5%
Prepaid Expenses Growth (%) 19.6%
Accounts Payable Growth (%) 1.5%
Accrued Expenses Growth (%) 10.0%
Capital Expenditures Growth (%) 10.0%

Free Cash Flow Buildup

$mm Projecte
2010A 2011A 2012A 2013P
Period 1
Total Revenues $14.5
EBITDA 5.1
EBIT 4.3
Tax rate 40.0%
EBIAT $2.6
Depreciation & Amortization 0.8
Accounts receivable (135.0)
Inventories (14.0)
Prepaid expenses (14.7)
Accounts payable 15.0
Accrued expenses 9.3
Capital expenditures (53.5)
Unlevered free cash flows ($189.5)
Discount Rate (WACC) 12.0%
Present value of free cash flows ($169.2)
Sum of present values of FCFs ($955.0)

Terminal Value
Growth in perpetuity method:
Long term growth rate 4.0%
WACC 12.0%
Free cash flow (t+1) (382.6)
Terminal Value (4,790.8)
Present Value of Terminal Value ###

WACC
Share Price $25.00
Diluted Shares Outstanding 500.0
Cost of Debt 5.2%
Tax Rate 40.0%
After-tax Cost of Debt 3.1%
Cost of Equity 15.0%

Total Debt ($) $4,250.0

Total Equity ($) 12,500.0
Total Capital ###

Debt Weighting 25.4%

Equity Weighting 74.6%

WACC = 12.0%

Enterprise Value to Equity Value

Enterprise Value ($3,675.1)
Less: Net debt 2,750.0
Equity Value ###
Diluted Shares Outstanding 500.0
Equity Value Per Share ($12.85)

Q: If the stock is trading at $25.00 a share and you believe that your DCF analysis is accu
A: Buy, because according to intrisic valuation, stock should actually be valued at $29.99
LESSON - BUILDING A SIMPLE DISCOUNTED CASH FLOW MODEL

Projected Annual Forecast

2017P 2018P 2019P 2020P
$16.1 $18.0 $20.3 $23.0
11.0% 12.0% 13.0% 13.0%

$5.6 $6.3 $7.1 $8.0

35.0% 35.0% 35.0% 35.0%

$4.8 $5.4 $6.1 $6.9

30.0% 30.0% 30.0% 30.0%

$0.9 $0.7 $1.0 $1.0

5.3% 4.1% 4.7% 4.4%

Projected Annual Forecast

2014P 2015P 2016P 2017P
1,500.0 1,500.0 1,500.0 1,500.0
1,648.4 1,846.2 2,086.2 2,357.4
1,001.2 1,092.3 1,200.5 1,319.3
106.5 123.1 139.1 160.4

$1,070.8 $1,168.3 $1,283.9 $1,411.0

113.6 127.2 143.7 162.4

4,250.0 4,250.0 4,250.0 4,250.0

653.2 731.6 826.7 934.2

11.0% 12.0% 13.0% 13.0%

5.5% 9.1% 9.9% 9.9%
18.7% 15.6% 13.0% 15.3%
5.5% 9.1% 9.9% 9.9%
11.0% 12.0% 13.0% 13.0%
11.0% 12.0% 13.0% 13.0%

Projected Annual Forecast

2014P 2015P 2016P 2017P
2 3 4 5
 $16.1 $18.0 $20.3 $23.0
5.6 6.3 7.1 8.0
4.8 5.4 6.1 6.9
40.0% 40.0% 40.0% 40.0%
$2.9 $3.2 $3.7 $4.1
0.9 0.7 1.0 1.0
(163.4) (197.8) (240.0) (271.2)
(52.2) (91.1) (108.1) (118.8)
(16.8) (16.6) (16.0) (21.3)
55.8 97.4 115.7 127.1
11.3 13.6 16.5 18.7
(64.7) (78.4) (95.1) (107.5)
($226.2) ($268.9) ($322.4) ($367.9)
12.0% 12.0% 12.0% 12.0%
($180.4) ($191.4) ($205.0) ($208.9)
DCF analysis is accurate, would you buy or sell stock in this company? Why?
be valued at $29.99 but market value is $25.00. Therefore, the stock is "cheap."
MODEL