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    w4 Budgeting Operations

    Uploaded by

    Adan Ceballos Miovich
    The document discusses the process of building a financial model to determine if a project finance formula can be applied to an initiative. An advisor considers technical, legal, and insurance factors and translates them into estimated cash flows, profits, losses, and balance sheets. The projected cash flow calculation is important to determine if the initiative can generate enough cash to cover debt service and pay dividends to sponsors as expected. Several steps are described to calculate interest expenses, net income, and cash flows for sponsors in the model over a 5 year period.

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    w4 Budgeting Operations

    Uploaded by

    Adan Ceballos Miovich
    14 views4 pages
    The document discusses the process of building a financial model to determine if a project finance formula can be applied to an initiative. An advisor considers technical, legal, and insurance factors and translates them into estimated cash flows, profits, losses, and balance sheets. The projected cash flow calculation is important to determine if the initiative can generate enough cash to cover debt service and pay dividends to sponsors as expected. Several steps are described to calculate interest expenses, net income, and cash flows for sponsors in the model over a 5 year period.

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    Ecbbb3b8f1d34e1052646debe12bf311 w4 Budgeting Operations

    Original Title

    Ecbbb3b8f1d34e1052646debe12bf311 w4 Budgeting Operations

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    The document discusses the process of building a financial model to determine if a project finance formula can be applied to an initiative. An advisor considers technical, legal, and insurance factors and translates them into estimated cash flows, profits, losses, and balance sheets. The projected cash flow calculation is important to determine if the initiative can generate enough cash to cover debt service and pay dividends to sponsors as expected. Several steps are described to calculate interest expenses, net income, and cash flows for sponsors in the model over a 5 year period.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    14 views4 pages

    w4 Budgeting Operations

    Uploaded by

    Adan Ceballos Miovich
    The document discusses the process of building a financial model to determine if a project finance formula can be applied to an initiative. An advisor considers technical, legal, and insurance factors and translates them into estimated cash flows, profits, losses, and balance sheets. The projected cash flow calculation is important to determine if the initiative can generate enough cash to cover debt service and pay dividends to sponsors as expected. Several steps are described to calculate interest expenses, net income, and cash flows for sponsors in the model over a 5 year period.

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    You are on page 1of 4

    Budgeting During Operation

    Note that in order to ascertain whether or not a project finance formula can be applied to a given initiative,
    an advisor builds a financial model. The technical/industrial, legal, and insurance considerations are
    compiled, collated, and translated into numbers.
    Some are obtained from objective data, and others are computed within a framework of a precise set of
    assumptions. The advisors aim is to come up with estimates on cash flows, profits, losses, and the balance
    sheet, along with a series of ratios based on the same forecasts. The projected cash flow calculation is vital
    for valuing the ability of the initiative to generate enough cash to cover the debt service and to pay sponsors
    dividends that are in line with expected returns.

    STEP 1: Profit and Loss Sheet - Calculating Interest Expenses


    Years 0 1 2 3 4 5
    EBITDA 75 75 75 75 75
    Depreciation & Amortization (DA) 20 20 20 20 20

    EBIT 55 55 55 55 55
    Interest Expenses ? ? ? ? ?

    STEP 2: Profit and Loss Sheet - Calculating Interest Expenses


    Years 0 1 2 3 4 5
    Outstanding 100 80 60 40 20 0
    Interest Expenes (5%) 5 4 3 2 1
    Principal 20 20 20 20 20

    Debt Service 25 24 23 22 21
    Step 3: Profit and Loss Sheet - Net Income
    Years 0 1 2 3 4 5
    EBITDA 75 75 75 75 75
    Depreciation & Amortization (DA) 20 20 20 20 20
    EBIT 55 55 55 55 55
    Interest Expenses 5 4 3 2 1
    EBT 50 51 52 53 54
    Corporate Taxes (50%) 25 25.5 26 26.5 27
    Net Income 25 25.5 26 26.5 27

    Step 4: Profit and Loss Sheet - Cash Flows for Sponsors


    Years 0 1 2 3 4 5
    EBITDA 75 75 75 75 75
    Taxes 25 25.5 26 26.5 27

    Working Capital (assumption) 0 0 0 0 0

    Capex (assumption) 0 0 0 0 0

    UCFC 50 49.5 49 48.5 48


    Debt Service 25 24 23 22 21

    Cash flow for sponsors (Dividends) 25 25.5 26 26.5 27


    EBITDA margin of 75m per annum

    Outstanding debt is spread over 5 years, and it is progressively reduced by the constant repayments (20%)
    5% interest fixed rate on debt
    Constant Principal Repayments (20% per annum)
    The proposed financial structure together with the hypothetical debt repayment plan
    give rise to the requirements for debt service for the principal and interest
    Corporate Tax Rate = 50% of EBT

    Depending on the sign, variations in working capital represent an outlay or a source of


    cash. So these changes have to be estimated among the variables that determine
    operating cash flow. Nonetheless, we should remember that in numerous project
    finance initiatives, the weight of investments in working capital is not particularly
    heavy.
    During Construction Phase the Capex required for realizing the project is
    considerable. Conversely, when operations are under way, Capex drops to zero.

    EBITDA - Taxes

    By means of the simulations run through the financial model, the advisor/arranger can
    come up with a series of debt/equity mixes that in every year of the operating phase
    satisfy the condition: Operating cash flow > Debt service

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