1 / 23

Module 4: Simple Analysis and Parsimonious Forecasting Patrick Noonan

Module 4: Simple Analysis and Parsimonious Forecasting Patrick Noonan. Overview of the Forecasting Process. Must create a set of financial statements that focus on enterprise items that we expect to persist Being conservative can be harmful

eugenia-norris
Download Presentation

Module 4: Simple Analysis and Parsimonious Forecasting Patrick Noonan

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Module 4: Simple Analysis and Parsimonious Forecasting Patrick Noonan

  2. Overview of the Forecasting Process • Must create a set of financial statements that focus on enterprise items that we expect to persist • Being conservative can be harmful • Financial statement forecasts are highly dependent on our revenue forecast • Focus on those effects that would alter investment or business decisions • There are economic and industry considerations that come into play • Goal: Demonstrate the process by which forecasting toward valuation can be done and the kinds of information and decisions involved

  3. Goal of Analysis (continued) • Gather information that is useful in forming expectations of future outcomes • Examine rate of return on capital invested in the enterprise activities (RNEA) • EPM – How much operating profit does the firm earn from each sales dollar? • EATO – How productive were the firm’s enterprise assets? • It is important to look over both time and across firms • How do we move from analyzing historical outcomes to future enterprise profitability and use of the assets?

  4. Disaggregating Return on Net Enterprise Assets Enterprise profit margin and Enterprise asset turnover

  5. Return on Enterprise Operations • RNEA fluctuates year over year due to changes in EPAT resulting from one-time items.

  6. Return on Enterprise Operations

  7. Breaking Apart the RNEA • EPM – Indicates the profit generated by each dollarof sales (profitability) • EATO – Indicates the sales generated by each dollarof NEA (efficiency)

  8. The Tradeoff between EPM and EATO

  9. Breaking Apart the RNEA

  10. Breaking Apart the RNEA

  11. Breaking Apart the RNEA – Competitor Analysis

  12. Steps for Forecasting • Forecast revenues via forecasts of sales growth rates • Forecast EPAT via forecasts of EPM • Forecast NEA via forecasts of EATO We are valuing the enterprise – Thus, we don’t forecast the firm’s financing activities. Revenues are often the most critical forecast since they drive all else.

  13. Parsimonious - Revenues Average: 56.62% What do we assume? 28.31%

  14. Parsimonious – Competitor Revenues

  15. Parsimonious – EPM (From Sales) What do we assume? 10%

  16. Parsimonious – Competitor EPM (from Sales)

  17. Parsimonious - EATO What do we assume? 1.65

  18. Parsimonious – Competitor EATO

  19. Parsimonious Assumptions • Sales growth rate: 28.31% • Enterprise profit margin (EPM): 10% • Enterprise asset turnover (EATO): 1.65

  20. Parsimonious Assumptions • Sales growth rate: 28.31% • Enterprise profit margin (EPM): 10% • Enterprise asset turnover (EATO): 1.65 20

  21. Parsimonious Assumptions • Sales growth rate: 28.31% • Enterprise profit margin (EPM): 10% • Enterprise asset turnover (EATO): 1.65 21 21

  22. Parsimonious Assumptions • Sales growth rate: 28.31% • Enterprise profit margin (EPM): 10% • Enterprise asset turnover (EATO): 1.65 22 22 22

  23. Questions? 23

More Related