Finance Case Study

Assignment Requirements

 

INSTRUCTIONS: Contained in this second part of the CASE STUDY for BADM 620 is your assignment to prepare a Pro Forma Income Statement and Balance Sheet for Blue Ridge Industries for the year 2014 and its estimated 2014 stock price.

FILE FORMAT: This assignment MUST be submitted in Excel spreadsheet format (.xls or .xlsx file extensions only). The course syllabus clearly states that three things are required for this course: Textbook, Connect Plus, and Microsoft Excel.

CALCULATIONS: All calculations requested in this Case Study spreadsheet must be in cell reference format (e.g., = C32*G54). Any number values included in your calculation cells or formulas will be counted incorrect (e.g., = 150215*G54). However, you are allowed to enter number values into the cells for the BETTER RATIO VALUES in Step #1.

Guide Sheet for Preparing the Pro Forma Financial Statements

 

STEP	Pro Forma Income Statement Items	Calculations Required
#Inc1	SALES2014	= Sales2013 x (1 + Expected Percentage Increase in Sales 2014(GIVEN))
#Inc2	Earnings Before Interest & Taxes (EBIT)2014	= SALES2014 x Operating Margin(BETTER) The BETTER “Operating Margin” will be the higher value (Benchmark vs. Firm).
#Inc3	Depreciation expense2014	= Depreciation as a % of net fixed assets(2014) x Net Fixed Assets2013 You use Net Fixed Assets from 2013 because the Given % Depreciation of Net Fixed Assets was estimated based on assets in service in 2013.
#Inc4	EBITDA2014	= EBIT2014 + Depreciation2014
#Inc5	Total Operating Expenses2014 (TOE2014)	= SALES2014̶ EBITDA2014 You must make this calculation in order to estimate Cost of Goods Sold and O&A Expense in 2014 (Steps 5a & 5b) This allows you to estimate the cost reductions necessary to correct a poor Operating Margin.
#Inc5a	Cost of Goods Sold2014   (CGS2014)	= TOE2014 x (CGS2013 / Total Operating Expenses2013) Using this formula the CGS2014 is estimated based on the proportion of CGS / Total Operating Expenses in 2013.
#Inc5b	Operating & Admin. Expense2014(O&A Exp2014)	= TOE2014 – CGS2014 Using this formula the O&A Expense2014 is estimated based on the remainder of Total Operating Expenses not accounted for by Cost of Goods Sold.
#Inc6	Total Interest expense2014	BEFORE WE CAN DETERMINE INTEREST EXPENSE WE MUST FORECAST THE BALANCE SHEET AND DETERMINE INTEREST BEARING DEBT (See Pro Forma Balance Sheet Calculations below)
#Inc7	Earnings Before Taxes2014	= EBIT2014 – Total Interest Expense2014
#Inc8	Taxes2014	= Tax Rate(GIVEN) x Earnings Before Taxes2014
#Inc9	Net Income2014	= Earnings Before Taxes2014 – Taxes2014
#Inc10	Dividends2014	= Dividend Payout Ratio(GIVEN) x Net Income2014
#Inc11	Additions to Retained Earnings2014	= Net Income2014 – Dividends2014

 

See NOTES for Pro Forma Income Statement on next page.

 

 

NOTES ON THE CALCULATIONS FOR THE PRO FORMA INCOME STATEMENT

 

STEP #Inc2:   FORECASTED EBIT:If the Benchmark’s Operating Margin is BETTER than the firm’s Operating Margin you will want to improve the firm’s EBIT to at least match that of the Benchmark. In this case you would multiple the firm’s Forecasted Sales times the Operating Margin_(BENCHMARK). However, if the firm’s Operating Margin is BETTER than the Benchmark Operating Margin you will want to maintain your own EBIT at the higher level you had in the previous year. In this case you would multiple the firm’s Forecasted Sales times the Operating Margin_(FIRM).

STEP #Inc3:   DEPRECIATION EXPENSE: Depreciation expense is based on the firm’s value of fixed assets. A simplifying assumption used in forecasting models to avoid circular calculations in a spreadsheet is to multiply the percent of depreciation expense of Net Fixed Assets estimated for the forecast year times the Net Fixed Assets value for the previous year. If you were to use Fixed Assets for the forecasted year as your basis for your depreciation expense it could be over stated. It would over stated because some if not all of the new fixed assets in the forecast year could have been purchased during the latter part of the year and would only qualify for partial year depreciation.

STEP#Inc5:    TOTAL OPERATING EXPENSE: One of the most common ways to correct an EBIT value that is lower than the Benchmark standard is to decrease Total Operating Expenses. You will need to break out Total Operating Expenses into Cost of Goods Sold and Operating & Administrative Expenses for your Pro Forma Income Statement so you can compute some of your 2014 ratios. To do this I would suggest that you distribute Total Operating Expenses into Cost of Goods Sold and into Operating & Admin. Expenses based on the same distribution of these costs during 2013.

STEP #Inc6:   TOTAL INTEREST EXPENSE: In order to calculate Interest Expense we must first calculate the Pro Forma Balance Sheet so we will know how much Interest Bearing Debt we will need in 2014. (See the notes on calculating Total Interest Expense shown on Page 6).

 

STEPS	Pro Forma Balance Sheet Items	Calculations Required
	ASSETS
#Bal1	Cash2014	= (Cash2013 / Sales2013) x SALES2014 Maintains the same proportion of Cash to Sales as in 2013.
#Bal2	Accounts Receivable2014 (A/R2014)	= Sales2014) / Receivables Turnover(BETTER) The BETTER “Receivables Turnover” will be the higher value (Benchmark vs. Firm).
#Bal3	Inventory2014	= Cost of Goods Sold2014 / Inventory Turnover(BETTER) The BETTER “Inventory Turnover” will be the higher value (Benchmark vs. Firm).
#Bal4	Current Assets2014	= Cash2014 + A/R2014 + Inventory2014
#Bal5	Net Fixed Assets2014	See the Note on the following page
#Bal6	Total Assets2014	= Sum of Current Assets2014 + Net Fixed Assets2014
	LIABILITIES & EQUITY
#Bal7	Target Level of Total Liabilities2014	= Total Assets2014 x Debt Ratio(BETTER)
#Bal8	Accounts payable2014 (A/P2014)	= (A/P2013 / Sales2013) x SALES2014 Maintains the same proportion of A/P to Sales as in 2013.
#Bal9	Accruals2014	= (Accruals2013 / Sales2013) x SALES2014 Maintains the same proportion of Accruals to Sales as in 2013.
#Bal10	Interest Bearing Debt2014	= Target Level of Total Liabilities – A/P2014 – Accruals2014
#Bal11	Long-term debt2014	See Note on following page
#Bal12	Notes payable2014	See Note on following page
#Bal13	Total Current Liabilities2014	= A/P2014 + Accruals2014 + Notes Payable2014
#Bal14	Target Level of Total Equity2014	= Total Assets2014 – Target Level of Total Liabilities2014
#Bal15	Retained earnings2014	= Retained Earnings2013 + Additions to retained Earnings2014
#Bal16	Common stock2014	See Note on following page
#Bal17	Total Liabilities & Equity2014	= Total Liabilities2014 + Total Equity2014(Should Equal Total Assets)

 

See NOTES for Pro Forma Balance Sheet on the following pages.

 

 

NOTES ON THE CALCULATIONS FOR THE PRO FORMA BALANCE SHEET

STEP #Bal5:  NET FIXED ASSETS: Calculating Net Fixed Assets for the forecast year is a multi-step process. It depends on the firm’s fixed assets as a percent of capacity and its level of forecasted sales.

                        Operating Capacity in 2013: If the firm is operating at less than 100% of capacity in 2013 (FYI: Fixed assets as a % of total capacity for 2013 was given to you in Case Study Part 2 (SPREADSHEET)(FALL 2013).xlsx, FORECAST WORKSHEET in TABLE #3), then you must follow these steps to determine the Net Fixed Assets for 2014:

1. Determine the level of sales that could be supported if Fixed Assets were used at 100% of Capacity:

Sales_{(100% Capacity)} = Sales₂₀₁₃ / Fixed assets as a % of Total Capacity₂₀₁₃

1. Once we know the Sales_{(100% Capacity)} we can determine if our Forecasted Sales for 2014 (SALES₂₀₁₄) will exceed the Sales_{(100% Capacity)} and therefore require additional fixed assets in 2014.

i.

This is determined for you in cell F97 of the FORECAST WORKSHEET.

If Forecasted Sales for 2014 are greater than Sales_{(100% Capacity)}then you must determine the Excess Sales in 2014 that will require additional fixed assets by using the formula:

Excess Sales₂₀₁₄ = SALES₂₀₁₄– Sales_{(100% Capacity)}

ii.    If Forecasted Sales for 2014 are less than or equal to Sales_{(100% Capacity)}then you will not need any additional fixed assets in 2014 and Net Fixed Assets₂₀₁₄ will be equal to Net Fixed Assets₂₀₁₃. No further calculations are required to determine Net Fixed Assets₂₀₁₄ and you can skip steps d, e, and f below.

1. If Forecasted Sales for 2014 are greater than Sales_{(100% Capacity)} then we must determine the Target Fixed Assets to Sales Ratio using the formula:

Target Fixed Assets to Sales Ratio = Fixed Assets₂₀₁₃ / Sales_{(100% Capacity)}

1. Once we know the Target Fixed Assets to Sales Ratio we can compute the forecasted level of Additional Fixed Assets for 2014 using the following formula:

Additional Fixed Assets₂₀₁₄ = Target Fixed Assets to Sales Ratio x Excess Sales₂₀₁₄

1. Final step is to determine the forecasted Net Fixed Assets for 2014 by adding the Fixed Assets in 2013 and the Additional Fixed Assets in 2014. So Net Fixed Assets₂₀₁₄ would be:

Net Fixed Assets₂₀₁₄ = Net Fixed Assets₂₀₁₃ + Additional Fixed Assets₂₀₁₄

 

STEP #Bal7:  TARGET LEVEL of TOTAL LIABILITIES: If the Benchmark Total Debt Ratio is BETTER than the firm’s Debt Ratio then you will want to improve the firm’s Total Debt Ratio to at least match that of the Benchmark. In this case you would multiple the firm’s forecasted TOTAL ASSETS 2014 times the TOTAL DEBT RATIO_(BENCHMARK). However, if the firm’s Total Debt Ratio is BETTER than the Benchmark Total Debt Ratio you will want to maintain your Debt at the same level you had in the previous year. In this case you would multiple the firm’s forecasted Total Assets 2014 times the TOTAL DEBT RATIO_(FIRM).

Target Level of Total Liabilities₂₀₁₄ = Total Assets₂₀₁₄ x Total Debt Ratio_(BETTER)

NOTES PAYABLE and LONG-TERM DEBT: You must determine Total Assets₂₀₁₄ (Step #Bal6) and then determine Accounts Payable₂₀₁₄ (Step #Bal8), Accruals₂₀₁₄ (Step #Bal9) and apply the TARGET DEBT RATIO before you will be able to determine the NOTES PAYABLE, and LONG-TERM DEBT in 2014. Notes Payable plus Long-Term Debt are considered to be INTEREST BEARING DEBT and are therefore usually determined as “residual values,” meaning they are the debt financing we use to make up any differences in Target Level of Total Liabilities for 2014.

STEP #Bal10:            INTEREST BEARING DEBT: This is the total amount of Notes Payable plus Long-Term Debt that needs to be determined in order to calculate the Total Interest Expense to go on the Pro Forma Income Statement.

Interest Bearing Debt consists of Notes Payable and Long-Term Debt. So to forecast the amount of Interest Bearing Debt in 2014 you would use the formula:

Interest Bearing Debt₂₀₁₄ = Target Level of Total Liabilities₂₀₁₄ – Accounts Payable₂₀₁₄ – Accruals₂₀₁₄

STEP #Bal11:            LONG-TERM DEBT: To determine Long-Term Debt₂₀₁₄ we first need to determine the proportions of Interest Bearing Debt comprised by Long-Term Debt in 2013 then multiply this percentage times Interest Bearing Debt estimated for 2014 to estimate Long-Term Debt₂₀₁₄.

% Long-Term Debt₂₀₁₃ = Long-Term Debt₂₀₁₃ / Interest Bearing Debt₂₀₁₃

Long-Term Debt₂₀₁₄ = % Long-Term Debt₂₀₁₃ x Interest Bearing Debt₂₀₁₄

STEP #Bal12:            NOTES PAYABLE: To determine Notes Payable 2014 we simply subtract Long-Term Debt₂₀₁₄ from Interest Bearing Debt₂₀₁₄. This approach will ensure that the sum of Notes Payable₂₀₁₄ and Long-Term Debt₂₀₁₄ always equals Interest Bearing Debt₂₀₁₄.

Notes Payable₂₀₁₄ = Interest Bearing Debt₂₀₁₄ − Long-Term Debt₂₀₁₄

 

 

STEP #Inc6:   TOTAL INTEREST EXPENSE (for the Pro Forma Income Statement): Now that we have determined the estimate of NOTES PAYABLE and LONG-TERM DEBT for 2014 we can estimate the interest expense associated with Notes Payable 2014 and Long-Term Debt 2014 for use on the Pro Forma Income Statement.

1. INTEREST EXPENSE – NOTES PAYABLE: You are given the estimate of short-term interest expense for 2014 and you have just calculated the estimate of Notes Payable for 2014. Interest Expense for Notes Payable in 2014 is the short-term interest rate for 2014 times the Notes Payable for 2014.
   
   Interest Expense for Notes Payable₂₀₁₄ = Short-Term Interest Rate₂₀₁₄ x Notes Payable2014

2. INTEREST EXPENSE FOR LONG-TERM DEBT: You are given the estimate of long-term interest expense for 2014 and you have just calculated the estimate of Long-Term Debt for 2014. Interest Expense for Long-Term Debt in 2014 is the long-term interest rate for 2014 times the Long-Term Debt for 2014.
   
   Interest Expense for Long-Term Debt₂₀₁₄ = Long-Term Interest Rate₂₀₁₄ x Long-Term Debt2014

3. TOTAL INTEREST EXPENSE: Total Interest Expense is simply the sum of Interest Expense for Notes Payable in 2014 and Interest Expense for Long-Term Debt in 2014.

   Total Interest Expense₂₀₁₄ = Interest Expense for Notes Payable₂₀₁₄ + Interest Expense for Long-Term Debt₂₀₁₄

STEP #Bal16:            COMMON STOCK: Now that we have determined the estimate of TOTAL LIABILITIES and RETAINED EARNINGS for 2014 we can estimate the amount of COMMON STOCK needed to restructure the financing of the firm and balance the balance sheet.

1. TARGET LEVEL OF COMMON STOCK: To determine the TARGET LEVEL OF COMMON STOCK needed to balance the balance sheet for 2014 we would subtract RETAINED EARNINGS for 2014 (determined in STEP #Bal15) from the Target Level of Total Equity for 2014 (determined in STEP #Bal14).
   
   Target Level of Common Stock₂₀₁₄ = Target Level of Total Equity₂₀₁₄̶ Retained Earnings2014

 

 

1. CHANGE IN DOLLAR VALUE OF COMMON STOCK IN 2014: To determine the change in the dollar value of Common Stock required for 2014 we must subtract Common Stock₂₀₁₃ (the balance shown on the 2013 Balance Sheet for Common Stock) from the Target Level of Common Stock₂₀₁₄.

Change in Common Stock₂₀₁₄ ($) = Target Level of Common Stock₂₀₁₄ – Common Stock₂₀₁₃

1. NUMBER OF COMMON SHARES IN 2014: To estimate the number of common shares we will have outstanding in 2014 to meet the TARGET LEVEL OF COMMON STOCK₂₀₁₄ we will have to complete two calculations.

i.    First, calculate the change in number of shares needed to meet the Target Level of Common Stock for 2014. This is done by dividing the Change in Common Stock₂₀₁₄ ($) by the Stock Price₂₀₁₃ (which was given in the Information Table for 2013).

Change in Number of Shares₂₀₁₄ = Change in Common Stock₂₀₁₄ ($) / Stock Price₂₀₁₃

ii.    Then add this Change in the Number of Shares₂₀₁₄ to the Common Shares Outstanding₂₀₁₃ (which was given in the Information Table for 2013).

Common Shares Outstanding₂₀₁₄ = Common Shares Outstanding₂₀₁₃ + Change in Number of Shares₂₀₁₄

FYI: This number of Common Shares Outstanding₂₀₁₄ that you just calculated will be used to calculate Earnings Per Share for 2014.
 

Guide Sheet For Estimating

2014 Stock Price and Market Value Ratios

 

ESTIMATING 2014 STOCK PRICE:

To estimate the Stock Price for 2014 you will have to go back and review Chapter 9.

 

You will need to use your skills learned in Chapter 9 to determine the Required Rate of Return (R_s), the expected constant growth rate (g), and Dividends per share (D₁).

 

NEEDED DATA FOR 2013:

1. Dividend Per Share (D₂₀₁₃): 2013 Dividends per share can easily be determined by dividing 2013 Dividends paid (from the 2013 Income Statement) by the # shares outstanding in 2013 (given on FORECAST WORKSHEET – TABLE #3).

a)     D₂₀₁₃ = Dividends paid₂₀₁₃ / # Common Shares Outstanding₂₀₁₃

2. Constant Growth Rate (g₂₀₁₃): You will need to determine the growth rate (g₂₀₁₃) based on the Return on Equity (ROE₂₀₁₃) (from your 2013 ratio calculations) and the Retention Ratio₂₀₁₃ = (1 – Dividend Payout Ratio).  (You did this in Practice Question for Chapter 9-5 for a similar situation.)

a)     g₂₀₁₃ = ROE₂₀₁₃ x Retention Ratio₂₀₁₃

3. Estimated Dividend Per Share 2014 (D(est.)₂₀₁₄): To estimate the 2014 Dividend (D(est.)₂₀₁₄) based on the constant growth rate in 2013 (g₂₀₁₃), this is calculated before the firm made any financial improvements for 2014, so you would use the formula:

a)     D(est.)₂₀₁₄ = D₂₀₁₃ x (1 +g₂₀₁₃)(This is an estimate of what the dividends would be in 2014 if the firm made no financial improvements.)

4. Stock Price 2013 (P₂₀₁₃): This value is provided for you on Forecast Worksheet – General Information (cell D54)as “Stock price 2013 (end of year)”.

a)     Required Rate of Return (R_s): Using the previous information the Required Rate of Return (R_s) on the firm’s stock based on the formula R_s = [D(est.)₂₀₁₄ / P₂₀₁₃] + g₂₀₁₃ will be determined for you on the STOCK PRICE WORKSHEET (cell D11).

Since we have estimated what the firm’s 2014 Pro Forma Net Income and Balance Sheet would be if we made improvements we can determine what the improved Dividends per share (D₂₀₁₄) and Growth rate (g₂₀₁₄) would be for 2014 and then use these estimates to determine what the firm’s 2014 estimated stock price should be at the end of the year.

NEEDED DATA FOR 2014:

1. Dividend Per Share (D₂₀₁₄): 2014 Dividends per share can be determined by dividing 2014 Dividends paid (from the 2014 Pro Forma Income Statement) by the Common shares outstanding 2014 (from your calculations on the FORECAST WORKSHEET in Step #7).

a)     D₂₀₁₄ = Dividends paid₂₀₁₄ / Common Shares Outstanding₂₀₁₄

2. Constant Growth Rate (g₂₀₁₄): Since the firm has made major improvements you will need to recalculate the 2014 constant growth rate (g₂₀₁₄) based on the 2014 Return on Equity (ROE₂₀₁₄) (from your 2014 ratio calculations you did on the FORECASTED RATIOS WORKSHEET ) and the Retention Ratio₂₀₁₄ which is equal to (1 – Dividend Payout Ratio₂₀₁₄). (FYI: The Dividend Payout Ratio in 2014 was the same as 2013.)

a)     g₂₀₁₄ = ROE₂₀₁₄ x Retention Ratio₂₀₁₄

3. Estimated Dividend Per Share 2015 (D(est.)₂₀₁₄): To estimate the 2015 Dividend (D(est.)₂₀₁₄) based on the new constant growth rate in 2014 (g₂₀₁₄) you would use this formula:

a)     D(est.)₂₀₁₅ = D₂₀₁₄ x (1 +g₂₀₁₄)(This is an estimate of what dividends would be in 2015 if the firm made all of its planned improvements in 2014.)

4. Required Rate of Return (R_s): Since we are trying to calculate the Stock Price for 2014 we will assume that the Required Rate of Return on stock (R_s) will use the same dividend yield as 2013 plus the new constant growth rate (g₂₀₁₄) determined after making the required improvements (Determined in Step # 2 above). This calculation has been provided for you in the STOCK PRICE WORKSHEET (cell E11) based on your calculations from the steps above.
5. 2014 Estimated Stock Price (P₂₀₁₄): Finally, with all of this information determined you can estimate the Stock Price at the end of 2014 (P₂₀₁₄) derived from the Chapter 9 formula:

a)     P₀ = D₁ / (R_s – g)

b)    For 2014 this formula becomes: P₂₀₁₄ = D(est.)₂₀₁₅ / (R_s – g₂₀₁₄)

ESTIMATING 2014 MARKET VALUE RATIOS:

Now that you have estimated the 2014 Stock Price and developed the Pro Forma Statements for 2014 you are able to estimate the Market Value Ratios for 2014.

1. Earnings Per Share 2014 (EPS₂₀₁₄): Earnings per share is Net Income divided by Common Shares Outstanding, so for 2014 we would use the following items to calculate the EPS ₂₀₁₄:
   1. Net Income₂₀₁₄ is easily found on the PRO FORMA INCOME STATEMENT 2014 (from FORECAST WORKSHEET).
   2. Common Shares Outstanding₂₀₁₄ comes from your calculations on the Forecast Worksheet in Step #7.
   3. Therefore, Blue Ridge Industries’ Earnings per Share for 2014 can be calculated using the formula:

                                          i.     EPS₂₀₁₄ = Net Income₂₀₁₄ / Common Shares Outstanding₂₀₁₄

2. Price Earnings Ratio 2014 (P/E₂₀₁₄): To determine the Price Earnings Ratio you are dividing the Stock Price by the Earnings Per Share, so for 2014 we would use what we have already calculated to determine the Price Earnings Ratio for 2014 (P/E₂₀₁₄):
   1. Stock Price 2014 (P₂₀₁₄) is the value you calculated above in Step #5 (2014 Estimated Stock Price).
   2. Earnings per Share 2014 (EPS₂₀₁₄) is the value you calculated in the previous step EPS₂₀₁₄.
   3. Therefore, Blue Ridge Industries’ Price Earnings Ratio for 2014 can be calculated using the formula:

i.     P/E₂₀₁₄ = P₂₀₁₄ / EPS₂₀₁₄

3. Market to Book Ratio 2014 (M/B₂₀₁₄): To determine the Market to Book Ratio you are dividing the Stock Price by the Book Value Per Share, so for 2014 we would use items we have already calculated to determine the Market to Book Ratio for 2014 (M/B₂₀₁₄):
   1. Stock Price 2014 (P₂₀₁₄) is the same value you calculated above in Step #5 (2014 Estimated Stock Price) and used in the P/E₂₀₁₄ calculations.
   2. Book Value Per Share 2014 (BPS₂₀₁₄) needs to be calculated based on Total Common Equity 2014 (found on the PRO FORMA BALANCE SHEET 2014 from the FORECAST WORKSHEET) divided by Common Shares Outstanding. Therefore putting these two values into the BPS₂₀₁₄ formula would be:

i.    BPS₂₀₁₄ = Total Common Equity₂₀₁₄ / Common Shares Outstanding₂₀₁₄

1. Therefore, Blue Ridge Industries’ Market to Book Ratio for 2014 can be calculated using the formula:

i.     M/B₂₀₁₄ = P₂₀₁₄ / BPS₂₀₁₄

 

 

4. Enterprise Value 2014 (EV₂₀₁₄): Enterprise value is a measure of the firm’s value that instead of focusing only on the Market Capitalization of stock, it also measures the Market Value of Outstanding Interest Bearing Debt minus Cash On Hand. We know the Market Capitalization of stock to be the Stock Price per share times Common Shares Outstanding, but we do not know the Market Value of Outstanding Interest Bearing Debt. However, the common practice for estimating the Market Value of Outstanding Interest Bearing Debt is to use the book value of outstanding interest bearing debt from the Balance Sheet and then subtract Cash On Hand. The purpose of the EV measure is to better estimate how much it would take to buy all of the outstanding stock of a firm and also be able to pay off the outstanding debt. The adjustment for cash is to recognize that if we were a buyer the cash could be used immediately to buy back debt or pay a dividend.
   1. So in order to estimate the Enterprise Value 2014 (EV₂₀₁₄) we would do the following calculations:
   2. Market Capitalization 2014 (MC₂₀₁₄) = Would be calculated based on 2014 Estimated Stock Price (P₂₀₁₄) (calculated above) times the number of Common Shares Outstandingin 2014 (from your calculations on the FORECAST WORKSHEET in Step #7).

i.    MC₂₀₁₄ = P₂₀₁₄ x Common Shares Outstanding₂₀₁₄

1. Market Value of Interest Bearing Debt (MVD₂₀₁₄): Is the book value of interest bearing debt estimated for 2014 (from your calculations on the FORECAST WORKSHEET in Step #5).
2. Cash on Hand (CASH₂₀₁₄): Would be the Cash balance shown on the 2014 Pro Forma Balance Sheet (found on the PRO FORMA BALANCE SHEET 2014 from the FORECAST WORKSHEET).
3. So Blue Ridge Industries’ Enterprise Value for 2014 can be calculated using the formula:

                                          i.    Enterprise Value 2014 (EV₂₀₁₄) = MC₂₀₁₄ + MVD₂₀₁₄ – CASH₂₀₁₄

5. EV Multiple 2014: Financial analysts use the EV multiple based upon a firm’s enterprise value when the goal is to estimate the value of the firm’s total business rather than just focusing on the value of its equity. The EV Multiple is useful because it allows comparison of one firm with another when there are differences in capital structure, interest expense, taxes, or capital spending. The EV Multiple 2014 would be determined as follows:
   1. Enterprise Value 2014 (EV₂₀₁₄): Determine in Step #4 just above.

i.    Enterprise Value 2014 (EV₂₀₁₄) = MC₂₀₁₄ + MVD₂₀₁₄ – CASH₂₀₁₄

1. Earnings Before Interest and Taxes, Depreciation & Amortization 2014 (EBITDA₂₀₁₄): This value is found on the PRO FORMA INCOME STATEMENT 2014 (from FORECAST WORKSHEET).
2. So Blue Ridge Industries’ EV Multiple for 2014 can be calculated using the formula:

                                          i.     EV Multiple 2014 = EV₂₀₁₄ / EBITDA₂₀₁₄

 

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