Recalculate the forecasts in Table 8-2 assuming that the NOPAT profit margin is held steady for the first five years of the forecast and thendeclines by 0.1 percentage points per year th
Trang 1Discussion Questions
1. How would the forecasts in Table 8-2 change if TJX were to maintain a sales growth rate of 10 percent per year from 2011 to 2020 (and all the other assumptions are kept unchanged)?
Income Statement
Sales
24,1
36
26,5
50
29,2
05
32,1
26
35,3
38
38,8
72
42,7
59
47,0
35
51,7
39
56,9
12 Net operating profit after tax
1,9
07
1,9
91
2,0
74
2,1
52
2,2
26
2,2
93
2,3
52
2,3
52
2,3
28
2,2
77
- Net interest expense after tax 124 146 161 179 198 219 243 269 298 330 = Net Income 1,783 1,846 1,912 1,974 2,028 2,074 2,109 2,082 2,030 1,946
Trang 32011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Beginning Balance
Sheet
Beg Net working capital 144 266 292 321 353 389 428 470 517 569 + Beg Net long-term assets
7,7
54
9,
027
10,0
03
11,0
83
12,2
80
13,6
05
15,0
73
16,6
97
18,4
97
20,4
88
= Net operating assets
7,89
9
9,2
93
10,29
5
11,40
5
12,63
3
13,99
4
15,50
0
17,16
8
19,01
4
21,05
8
Net debt
4,5
41
5,
343
5,9
19
6,5
57
7,2
64
8,0
46
8,9
12
9,8
71
10,
932
12,
107 + Preferred stock
+ Common stock
3,3
57
3,
950
4,3
76
4,8
47
5,3
70
5,9
48
6,5
88
7,29
7
8,08
2
8,95
0
= Net capital
7,899
9,293
10,295
11,405
12,633
13,994
15,500
17,168
19,014
21,058
Ratios
Trang 42011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Cash flows
Net Income
1,7 83
1,8
46
1,9
12
1,9
74
2,0
28
2,0
74
2,1
09
2,0
82
2,0
- Change in net working capital
(12 1)
(27)
(29)
(32)
(35)
(39)
(43)
(47)
(52) (57)
- Change in net long-term assets
(1, 273)
(976
)
(1,0 81)
(1,1 97)
(1,3 25)
(1,4 67)
(1,6 25)
(1,7 99)
(1,9 92) (2,049) + Change in net debt
80
2
57
6
63
8
70
7
78
2
86
6
95
9
1,
061
1,
175 1,211 = Free cash flow to equity
1,
190
1,
420
1,
440
1,
451
1,
450
1,
434
1,
400
1,
298
1,
161 1,051
Net operating profit after tax
1,9
07
1,9
91
2,0
74
2,1
52
2,2
26
2,2
93
2,3
52
2,3
52
2,3
- Change in net working capital
(12 1)
(27)
(29)
(32)
(35)
(39)
(43)
(47)
(52) (57)
- Change in net long-term assets
(1, 273)
(976
)
(1,0 81)
(1,1 97)
(1,3 25)
(1,4 67)
(1,6 25)
(1,7 99)
(1,9 92) (2,049) = Free cash flow to capital
51
3
98
9
96
4
92
4
86
6
78
7
68
4
50
6
28
Note: 2021 input values same as 2020
Trang 52 Recalculate the forecasts in Table 8-2 assuming that the NOPAT profit margin is held steady for the first five years of the forecast and then
declines by 0.1 percentage points per year thereafter (keeping all the other assumptions unchanged)
Income Statement
Sales
23,1
93
24,7
24
26,4
79
28,3
06
30,2
03
32,1
66
34,1
92
36,2
78
38,4
18
40,6
08 Net operating profit after tax
1,8 32
1,9
53
2,0
92
2,2
36
2,3
86
2,5
09
2,6
33
2,7
57
2,8
81
3,0
05
- Net interest expense after tax
12
4
13
6
14
6
15
8
16
9
18
2
19
4
20
8
22
1
2
36 = Net Income
1,7 08
1,8
17
1,9
45
2,0
79
2,2
17
2,3
27
2,4
38
2,5
49
2,6
60
2,7
69
- Preferred dividends
-
-
-
-
-
-
-
-
= Net income to common
1,7 08
1,8
17
1,9
45
2,0
79
2,2
17
2,3
27
2,4
38
2,5
49
2,6
60 2,7
69
Trang 62011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Beginning Balance Sheet
Beg Net working capital 144
+ Beg Net long-term assets
7,7
54
8,4
06
9,06
9
9,76
6
10,4
95
11,2
58
12,0
53
12,8
79
13,7
35
14,6
19
= Net operating assets
7,89
9
8,65
3 9,334
10,04
9
10,79
7
11,58
0
12,39
5
13,24
1
14,11
9
15,02
5
Net debt
4,5 41
4,9
75
5,3
67
5,7
78
6,2
08
6,6
58
7,1
26
7,6
13
8,1
18
8,6
39 + Preferred stock
-
-
-
-
-
-
-
-
+ Common stock
3,3
57
3,6
78
3,9
67
4,2
71
4,5
89
4,9
22
5,2
68
5,62
8
6,00
1
6,38
6
= Net capital
7,89
9
8,65
3 9,334
10,04
9
10,79
7
11,58
0
12,39
5
13,24
1
14,11
9
15,02
5
Ratios
Trang 72011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Cash flows
Net Income
1,70
8
1,81
7
1,94
5
2,07
9
2,21
7
2,32
7
2,43
8
2,54
9
2,66
0
2,76
9
-
Change in net working
capi-tal
(103
)
( 18) (18)
( 19)
( 20)
( 20)
( 21)
( 21)
( 22)
(23)
-
Change in net long-term
as-sets
(652
)
(663
) (697) (730) (763) (795) (826) (856) (884) (833) + Change in net debt
43
4
39
1
41
1
43
1
45
0
46
9
48
7
50
4
52
1
49
2 = Free cash flow to equity
1,3
88
1,5
28
1,6
42
1,7
60
1,88
4
1,98
1
2,07
8
2,17
7
2,27
5
2,40
5
Net operating profit after tax
1,83
2
1,95
3
2,09
2
2,23
6
2,38
6
2,50
9
2,63
3
2,75
7
2,88
1
3,00
5
-
Change in net working
capi-tal
(103
)
( 18) (18)
( 19)
( 20)
( 20)
( 21)
( 21)
( 22)
(23)
- Change in net long-term as-sets (652) (663) (697) (730) (763) (795) (826) (856) (884) (833) = Free cash flow to capital 1,077 1,273 1,377 1,487 1,604 1,694 1,786 1,880 1,975 2,149 Note: 2021 input values same as 2020
Trang 83. Recalculate the forecasts in Tables 8-2 assuming that the ratio of net operating working capital to sales is 3 percent, and the ratio of net long-term assets to sales holds steady at 33.4 percent for all the years from fiscal 2011 to fiscal 2020 Keep all the other assumptions unchanged.
Income Statement
Sales
23,1
93
24,7
24
26,4
79
28,3
06
30,2
03
32,1
66
34,1
92
36,2
78
38,4
18
40,6
08 Net operating profit after tax
1,8
32
1,8
54
1,8
80
1,8
97
1,9
03
1,8
99
1,8
81
1,8
14
1,7
29
1,6
24
- Net interest expense after tax
1
24
1
41
1
51
1
62
1
72
1
84
1
95
2
07
2
19
2
32 = Net Income
1,7
08
1,7
13
1,7
29
1,7
35
1,7
30
1,7
14
1,6
85
1,6
07
1,5
09
1,3
92
= Net income to common
1,7
08
1,7
13
1,7
29
1,7
35
1,7
30
1,7
14
1,6
85
1,6
07
1,5
09 1,3
92
Trang 92011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Beginning Balance Sheet
Beg Net working capital
144 1 742 794 849 906 965
1,02
6
1,08
8
1,15
3
1,21
8 + Beg Net long-term assets
7,7
54
8,25
8
8,84
4 9,454
10,08
8
10,74
3
11,42
0
12,11
7
12,83
2
13,56
3
= Net operating assets
7,89
9 8,999 9,638 10,303 10,994 11,708 12,446 13,205 13,984 14,781
Net debt
4,5
41
5,1
74
5,5
42
5,92
4
6,32
1
6,73
2
7,15
6
7,59
3
8,04
0
8,49
9 + Preferred stock
-
-
- - - - + Common stock
3,3
57
3,8
25
4,0
97
4,37
9 4,673 4,976 5,290 5,613 5,944 6,283
= Net capital
7,89
9 8,999 9,638 10,303 10,994 11,708 12,446 13,205 13,984 14,781
Ratios
Trang 10Cash flows 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Net Income
1,7
08
1,7
13
1,7
29
1,7
35
1,7
30
1,7
14
1,6
85
1,6
07
1,5
09
1,3
92
- Change in net working capital
(598
)
(53
)
(55
)
(57
)
(59
)
(61
)
(63
)
(64
)
(66
)
(69
)
- Change in net long-term assets
(503
)
(586
)
(610
)
(633
)
(656
)
(677
)
(697
)
(715
)
(731
)
(773
) + Change in net debt 633
36
7
38
2
39
7
41
1
42
4
43
7
44
8
45
8
48
4 = Free cash flow to equity
1,24 0
1,
442
1,
446
1,
441
1,
427
1,
401
1,
363
1,
276
1,
171
1,
034
Net operating profit after tax
1,8
32
1,8
54
1,8
80
1,8
97
1,9
03
1,8
99
1,8
81
1,8
14
1,7
29
1,6
24
- Change in net working capital
(598
)
(53
)
(55
)
(57
)
(59
)
(61
)
(63
)
(64
)
(66
)
(69
)
- Change in net long-term assets
(503
)
(586
)
(610
)
(633
)
(656
)
(677
)
(697
)
(715
)
(731
)
(773
) = Free cash flow to capital 731
1,
215
1,
215
1,
206
1,
188
1,
160
1,
121
1,
035
93
2
78
2 Note: 2021 input values same as 2020 Also, net operating working capital to sales ratio for 2011 is an actual
Trang 114. Calculate TJX’s cash payouts to its shareholders in the years 2011–2020 that are implicitly assumed in the projections in Table 8-2
The cash payouts made to shareholders are simply the free cash flows to equity These are the surplus cash flows available after
reinvesting needed funds in working capital and assets The values are presented in Table 8-2 and are $1,387.6 in 2011, declining to
$1,024.7 in 2020.
5. How would the abnormal earnings calculations in Table 8-3 change if the cost of equity assumption is changed to 12%?
Equity Valuation
Abnormal earnings
1,
305
1,
277
1,
257
1,
226
1,
183
1,
125
1,
054
93
1
78
7
62
2
Trang 126. What would be the total equity value (as calculated for scenarios in Table 8-6 using abnormal earnings) if the sales growth in years 2021 and
beyond is 8.5 percent and the company is able to generate abnormal returns at the same level as in fiscal 2020 forever (keeping all the other
assumptions in the table unchanged)?
Income Statement
Sales
23,1
93
24,7
24
26,4
79
28,3
06
30,2
03
32,1
66
34,1
92
36,2
78
38,4
18
40,6
08
44,06
0 Net operating profit after tax
1,8
32
1,8
54
1,8
80
1,8
97
1,9
03
1,8
98
1,8
81
1,8
14
1,7
29
1,6
24 1,762
- Net interest expense after tax
1
24
1
36
1
46
1
58
1
69
1
82
1
94
2
08
2
21
2
36 256 = Net Income
1,7
08
1,7
19
1,7
34
1,7
39
1,7
33
1,7
16
1,6
86
1,6
06
1,5
07
1,3
89 1,507
= Net income to common
1,7
08
1,7
19
1,7
34
1,7
39
1,7
33
1,7
16
1,6
86
1,6
06
1,5
07 1,3
89 1,507
Trang 132011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Beginning Balance Sheet
Beg Net working capital
1
44 247 265 283 302
322 342 363 384 406 441 + Beg Net long-term assets
7 ,754
8,
406
9,
069
9,76
6
10,4
95
11,2
58
12,0
53
12,8
79
13,7
35
14,6
19 15,862
= Net operating assets
7,
989
8,6
53
9,3
34
10,04
9
10,79
7
11,58
0
12,39
5
13,24
1
14,11
9
15,02
Net debt
4 ,541
4,
975
5,367
5,7
78
6,2
08
6,6
58
7,1
26
7,6
13
8,1
18
8,6
39 9,373
- - - - + Common stock
3 ,357
3,
678
3,967
4,2
71
4,5
89
4,9
22
5,2
68
5,62
8
6,00
1
6,38
6 6,929
= Net capital
7,
899
8,6
53
9,3
34
10,04
9
10,79
7
11,58
0
12,39
5
13,24
1
14,11
9
15,02
Ratios
Book value of assets
Book value of equity
Net operating asset