Question

Below is the Income statement for Company X

1)Forecast the firm’s Earnings per share and cash flow per share by filling in the box below.

-

Shares Outstanding 5

1.18B

Dividends & Splits

Forward Annual Dividend Rate 4	N/A
Forward Annual Dividend Yield 4	N/A
Trailing Annual Dividend Rate 3	N/A
Trailing Annual Dividend Yield 3	N/A
5 Year Average Dividend Yield 4	N/A
Payout Ratio 4	0.00%
Dividend Date 3	N/A
Ex-Dividend Date 4	N/A
Last Split Factor (new per old) 2	N/A
Last Split Date 3	N/A

Start with the most recent income statement and common size it. For the forecast period, adjust the numbers for future growth and decline in sales. Other items in income statement should be based on adjustments to past ratios.

Income Statement All numbers in thousands Revenue 12/31/2017 12/31/2016 12/31/2015 12/31/2014 Total Revenue 13,094,000 10,842,000 9,248,000 8,025,000 Cost of Revenue 7,077,000 5,701,000 4,529,000 3,807,000 Gross Profit 6,017,000 5,141,000 4,719,000 4,218,000 Operating Expenses Research Development 953,000 834,000 792,000 747,000 Selling General and Administrative 2,283,000 1,997,000 1,810,000 1,687,000 Non Recurring - - - - Others 92,000 92,000 92,000 92,000 Total Operating Expenses 11,180,000 9,256,000 7,739,000 6,757,000 Operating Income or Loss 1,914,000 1,586,000 1,509,000 1,268,000 Income from Continuing Operations Total Other Income/Expenses Net 286,000 45,000 -21,000 -7,000 Earnings Before Interest and Taxes 1,914,000 1,586,000 1,509,000 1,268,000 Interest Expense - - - - Income Before Tax 2,200,000 1,631,000 1,488,000 1,261,000 Income Tax Expense 405,000 230,000 260,000 842,000 Minority Interest - - - - Net Income From Continuing Ops 1,795,000 1,401,000 1,228,000 419,000 Non-recurring Events Discontinued Operations - - - - Extraordinary Items - - - - Effect Of Accounting Changes - - - - Other Items - - - - Net Income Net Income 1,795,000 1,401,000 1,228,000 419,000 Preferred Stock And Other Adjustments - - - - Net Income Applicable To Common Shares 1,795,000 1,401,000 1,228,000 419,000

	FY 2014	FY 2015	FY 2016	FY 2017	ASSUMPTIONS (% OF Revenue)
Assumed Growth Rate in %
Total Revenue
Cost of Revenue
Gross Profit
Total Operating Expense
Operating Income
Other Income, Net
EBIT
Interest Expense
Net Income From Continuing Ops
Non-Recurring Events
Discontinued Op
Income from non-controlling int.
Net Income
EPS
DPS

Answer 1

Common-size statement:

Common size
All numbers in thousands
Revenue	12/31/2017	12/31/2016	12/31/2015	12/31/2014
Total Revenue	100.00%	100.00%	100.00%	100.00%
Cost of Revenue	54.05%	52.58%	48.97%	47.44%
Gross Profit	45.95%	47.42%	51.03%	52.56%
Operating Expenses
Research Development	7.28%	7.69%	8.56%	9.31%
Selling General and Administrative	17.44%	18.42%	19.57%	21.02%
Non Recurring	-	-	-	-
Others	0.70%	0.85%	0.99%	1.15%
Total Operating Expenses	85.38%	85.37%	83.68%	84.20%
Operating Income or Loss	14.62%	14.63%	16.32%	15.80%
Income from Continuing Operations
Total Other Income/Expenses Net	2.18%	0.42%	-0.23%	-0.09%
Earnings Before Interest and Taxes	14.62%	14.63%	16.32%	15.80%
Interest Expense	-	-	-	-
Income Before Tax	16.80%	15.04%	16.09%	15.71%
Income Tax Expense	3.09%	2.12%	2.81%	10.49%
Minority Interest	-	-	-	-
Net Income From Continuing Ops	13.71%	12.92%	13.28%	5.22%
Non-recurring Events
Discontinued Operations	-	-	-	-
Extraordinary Items	-	-	-	-
Effect Of Accounting Changes	-	-	-	-
Other Items	-	-	-	-
Net Income
Net Income	13.71%	12.92%	13.28%	5.22%
Preferred Stock And Other Adjustments	-	-	-	-
Net Income Applicable To Common Shares	13.71%	12.92%	13.28%	5.22%

Past-ratios for other items calculated as below, to forecast for FY18, FY19, FY20 in the last column (taken average for the last 3 years, to be used as % forecast for next 3 years)

Income Statement		Past ratios for other items
All numbers in thousands
Revenue	12/31/2017	12/31/2016	12/31/2015	12/31/2014	AVERAGE
Total Revenue	0.21	0.17	0.15	8,025,000	0.18
Cost of Revenue	0.24	0.26	0.19	3,807,000	0.23
Gross Profit	-0.03	-0.09	-0.04	4,218,000
Operating Expenses
Research Development	0	0	0	747,000	0.09
Selling General and Administrative	0	0	0	1,687,000	0.11
Non Recurring	-	-	-	-
Others	92,000	92,000	92,000	92,000	92,000
Total Operating Expenses	11,180,000	9,256,000	7,739,000	6,757,000
Operating Income or Loss	1,914,000	1,586,000	1,509,000	1,268,000
Income from Continuing Operations
Total Other Income/Expenses Net	5.36	-3.14	2.00	-7,000	1.40
Earnings Before Interest and Taxes	1,914,000	1,586,000	1,509,000	1,268,000
Interest Expense	-	-	-	-
Income Before Tax	2,200,000	1,631,000	1,488,000	1,261,000	tax at 18%
Income Tax Expense	405,000	230,000	260,000	842,000
Minority Interest	-	-	-	-
Net Income From Continuing Ops	1,795,000	1,401,000	1,228,000	419,000

Below items are forecasted at these average rates for next 3 years

• Total Revenue forecasted at 18% each year for next 3 years (avg of last 3yr)
• COGS at 23% of previous years
• R&D expenses at 9% of previous year
• SG&A at 11% of previous year
• Other expenses remained at 92,000
• Total other income/expenses to be x1.4 times prevous year
• Income tax rate at 18% (calculated as tax-rate = income-tax-paid/EBT)

Forecast for FY18, FY19, FY20 as below:

	FY 2018	FY 2019	FY 2020\	ASSUMPTIONS (% OF Revenue)
FY
Assumed Growth Rate in %	19%	20%	22%	previous 3 years saw an average of 18%
Total Revenue	15,581,860.00	18,698,232.00	22,811,843.04
Cost of Revenue	8,704,710.00	10,706,793.30	13,169,355.76	at 23% of previous year
Gross Profit	6,877,150.00	7,991,438.70	9,642,487.28
Research Development	1,038,770.00	1,132,259.30	1,234,162.64	at 9% of prev year
Selling General and Administrative	2,534,130.00	2,812,884.30	3,122,301.57	at 11% of prev year
Others	92,000	92,000	92,000	constant at 92,000
Total Operating Expense	3,664,900.00	4,037,143.60	4,448,464.21
Operating Income	3,212,250.00	3,954,295.10	5,194,023.07
Other Income, Net	400,400.00	560,560.00	784,784.00	assumed 1.4 times prev year
EBIT	3,612,650.00	4,514,855.10	5,978,807.07
Interest Expense	0.00	0.00	0.00
EBT	3,612,650.00	4,514,855.10	5,978,807.07
Less: income tax	650,277.00	812,673.92	1,076,185.27	tax assumed at 18%
Net Income From Continuing Ops	2,962,373.00	3,702,181.18	4,902,621.80
Non-Recurring Events
Discontinued Op
Income from non-controlling int.
Net Income	2,962,373.00	3,702,181.18	4,902,621.80
EPS	2.51	3.14	4.15
DPS
Shares o/s	1.18 billion
Shares o/s	1,180,000	(in thousands)
one billion	1,000,000,000
1.18 billion	1180000000
(in thousands)	1180000