Financial Forecast for Goldengate Capital
The forecasted balance sheets, income statements and assumption provided to Goldengate Capital by Ernst and Anderson are shown in Exhibits. All dollar figures quoted are in thousands. The financial forecasts are conservative case sales estimates from Dr. Martinez. The three main factors considered in the estimates were case sales trends & demand, inflation and real price increases reflecting Calaveras' strengthening brand recognition.
The first assumption is that the prices will increase 2% before inflation. The production level per ton of grapes and yield per acre will increase to 1992 levels due to the new market strategies. Sales are expected to grow 13% in 1995 after which estimate of 12%, 6%, and 8% for 1996, 1997 and 1998, respectively show growth while recognizing a shift toward white wines. The tax rate of 37% and inflation rate of 2% is factored in to the forecast. Therefore the prices per case for each category has 2% price growth as well as 2% inflation rate, total of 4% was reflected in arriving at the forecasted income statement. Maximum capacity of 110,000 was assumed in the forecast and does show that even with the increase levels of production will not hit this ceiling in the next 5 years. Depreciation was calculated on 5-year straight-line basis, while SGA was constant 14% of sales. The key drivers of this model are Gross margin on each of the 5 main product group, tax rate, inflation rate, real price growth level, interest rate, Inventory to COGS, Accounts Receivable to Sales ratio.
EVALUATIONS OF PRO FORMA STATEMENTS
In order to analyze the financial position of Calaveras Vineyard, as mentioned in the "Financial Forecast Method and Assumptions" section, Proforma Income statement and Balance sheet was compiled using the assumptions mentioned in the previous section. We use the weight of products and the comparable companies’ unleveled beta to calculate the cost of capital. Using these assumptions, WACC was determined to be 16.1% .
Calaveras Vineyards
Cost of capital
Comparable's
Product line / Comparable Calaveras % Unlevered beta
Premium/Finn & Sawyer 74.40% 1.312
Generic/Canandaigua 9.00% 0.54
Specialty/Frogg's Jump 16.60% 0.867
Weighted average unlevered beta 1.169
Risk-free rate (30-yr T-bond) 5.85%
Market equity risk premium 5.70%
Calaveras unlevered cost of equity 12.51%
In order to determine the value of operations, and using proforma income statement and balance sheet statement, Cash flow statement was formulated for the next 5 years. The Account Receivables plus the Inventory minus the Account Payable was determined as Net Operating Working Assets. An organization cost of 0,000 was amortized over the 5-year period.
In order to find out what are some of the key drivers’ of the analysis I will further run different sensitivity analysis. I think some of the key drivers of our assumptions could be sales growth, production costs as a percentage of sales, inventories as a percentage of cost of goods sold etc.
MCI's capital requirements for the next 3 years are x,y and z. (see exhibit A). These values are based on a number of different assumptions. (See exhibit B). The forecast is not without a level of uncertainty. Specifically there are regulatory decisions where the outcome is not clear at this time. This could impact profit margin plus or minus seven percentage points. (See exhibit c)
To begin the analysis on Krispy Kreme, the first analysis is that of the depreciation analysis. There are three different methods to calculate depreciation and they are straight-line, units-of-production and double-declining-balance (Larson, Wild, & Chiappetta, 2005). The Krispy Kreme Company uses the straight-line method to calculate their depreciation on building, machinery, equipment and leasehold improvements. The breakdown of the depreciation on property and equipment consist of land, buildings, machinery and equipment, leasehold improvements and construction in process (Larson, Wild, & Chiappetta, 2005). Krispy Kreme’s total gross property and equipment in 2002 was a total of $156,484,000 and in 2003, it was a total of $252,770,000. The accumulated depreciation for the year 2002 was a total of $43,907,000 and for the year 2003, the total was $50,212,000. To find the net property and equipment amount, taking the gross property and equipment and subtracting the accumulated depreciation is the equation used. The net property and equipment for the year 2002 would be $112,577,000 and 2003 would be $202,558,000. Once b...
2. Given the forecasts provided in the case, estimate the expected incremental free cash flows associated with Du Pont’s growth strategy and maintain strategy for the TiO2 market. How much risk and uncertainty surround these future cash flows? Which strategy looks most attractive (i.e., using the DCF (e.g., NPV) method)??
Within the wine industry, it is often thought of as having a low threat of entrants based on a historical understanding. In the Old World, the use of technology and automation is avoided as well as the use of strategic advertising and promotion methods. In addition, a highly regulated production system is implemented for certain inputs of the industry, which introduced a low threat of new entrants. However, the threat has risen in the New World due to the investment in technology and automation based production as well as an increased budget for advertising. The ability to start an independent, high-end winery takes a large physical and financial capital investment.
In order to achieve this objective Robert believed that he needed to build a Robert Mondavi brand in the premium wine market segment. This resulted in the initial pro¬duction of a limited quantity of premium wines using the best grapes, which brought the highest prices in the market and had the highest profit margins per bottle. How¬ever, he soon realized that this strategy, while establishing the brand, did not allow the company to generate enough cash flow to expand the business. In order to solve this problem Robert decided to produce less expensive wines that he could sell in higher volumes. He dedicated time and effort to finding the best vineyards in Napa Valley for the company's production of grapes. In addition, he signed long-term con¬tracts with growers in Napa Valley and worked closely with each grower to improve grape quality.
In order to forecast free cash flow, the first assumptions that had to be made were in regards to sales growth for RMAG;s products. As information regarding diagnostics and agriculture related products is limited and comparable companies are scarce, it was assumed that RMAG’s forecasts were slightly optimistic as to push firm value up therefore an average sales revenue was determined from RMAG and Big Sur’s forecasts. To forecast beyond 2005, sales growth per year was analysed historically and then used to extrapolate future sales until 2010. As the products will originally experience extremely high sales growth due to the unique nature of products, the growth will need to eventually slow to an industry average therefore this is demonstrated in the forecast proforma. Sales growth is expected to slow to 2.5-5%, the range of industry average to economy growth.
While analyzing the data for The Body Shop International case, I noticed some trends and have compiled my assumptions for the next three years. I have compiled pro-forma statements for the fiscal years 2002, 2003 & 2004. These figures are based on the percentage of sales method for pro-forma financial modeling. Simply put, I used the sales figures from the past three years 1999, 2000 & 2001 and applied a growth rate of 13% increase to sales. Below are some additional assumptions that I have created to illustrate how the firm can become profitable while increasing market share and maintaining stockholder interest within the firm over the next three years.
The final model used to compute the cost of capital was the earning capitalization model. The problem with this model is that it does not take into consideration the growth of the company. Therefore we chose to reject this calculation. The earnings capitalization model calculations were found this way:
Finally, I have suggested some recommendations for the issues that I have mentioned above. In reference to the first issue, it will be profitable for the company to change to level monthly production.
The banana industry is a highly profitable business for large companies such as Chiquita, Dole, and Del Monte. In order to reduce the volatility of the business and control costs of the natural product banana the companies take various actions. First, ...
As the company investment is based on the profit generated in last year’s so the budget of the project will be defined after annual report is published which define the annual revenue of this company.
During the last few years, Harry Davis Industries has been too constrained by the high cost of capital to make many capital investments. Recently, though, capital costs have been declining, and the company has decided to look seriously at a major expansion program that had been proposed by the marketing department. Assume that you are an assistant to Leigh Jones, the financial vice president. Your first task is to estimate Harry Davis’s cost of capital. Jones has provided you with the following data, which she believes may be relevant to your task.
"More Companies Turn to ABC."Journal of Accountancy, July 1994, p. 14. 11. Ness, J.A. and T.G. Cucuzza. " Tapping the Full Potential of ABC."
Profitability is the main objective of all businesses. Business will not be able to survive if there is no state of providing a financial gain. Hence, it is especially significant to know and calculate the present and past profitability and forecasting future profitability. Income and expense are being used in computing in computing profitability. Income is what was being produced from the activities of the business. For instance, if raw materials and end products are produced and sold, income is achieved. On the other hand, expenses are the expenditure of assets accumulated or depleted by the activities of the business. For instance, seed corn is an expense of a farm business since it incurred in the production process (Hofstrand, 2009).