Lecture Series #2
Budget Planning, Implementation and Monitoring
Second Step: Building the Projections – Corporate Approach
Chris Droussiotis
September 2011
Table of Contents




Top to Bottom / Bottom to Top Line (Government Approach)
Revenue Growth & Operating Assumptions
Striving for Cash Flow / Profit
Performance measurements
These slides could be obtain via the Instructor’s Web page at
www.celeritymoment.com
2
Top to Bottom Line Drivers

Revenue Drivers
–
Growth Assumptions (increase/decrease)



–
“Volume” concept


–
3
“Same Store Sales”
“Acquisitions / “New Stores”
“Price” concept


Historical averages
Future assumptions / views
Demand and Supply: Volume Vs Price
Market Conditions / Pass-through concepts
Revenue Segments (subsidiaries, product/services,
geographical, departments)
Top to Bottom Line Drivers

Cost / Expense Drivers
–
Direct Expenses / Gross Profit

Cost of Revenue as % of Revenue
–

–
Cost per Unit / Hourly Wages
Indirect Expenses / EBIT or EBITDA Margins

Operating Assumptions as % of Revenues
–
–
–
–
4
Selling / General / Administrative
Utility Expenses
Depreciation Expenses (% of Revenue / Based on Assets and Average Life)
Interest Expense

–
Material / Labor / Overhead
New or Existing Debt
Taxes / Tax Rate
Bottom to Top Line Approach

Cost Drives Revenue
–
–
Gross Margin / Operating Margin
EBITDA / Net Income
REVENUE
Price
5
Operating Assumptions / Drivers
Ratio Analysis / Assumptions
6
123
124
125
126
127
Trend Analysis Ratios
Revenue Growth - USA
Revenue Growth - Europe
Revenue Growth - Asia
Revenue Growth
129
130
131
132
133
Liquidity Ratios
Current Ratio
Quick ratio
Accounts Receivable Turnover (ART)
Accounts Receivable Days
135
136
137
138
139
140
141
142
Solvency Ratios
Debt/Equity Ratio
LTD / Total Capitalization
EBITDA / Interest (Coverage Ratio)
EBIT / Interest
Fixed Charge Coverage Ratio
Cash Avail.for Debt Service / Debt Svce
LTD / EBITDA (Leverage Ratio)
2009
2010
2011
2012
2013
2014
2015
15.0%
16.7%
25.0%
15.6%
5.0%
5.0%
10.0%
5.0%
5.0%
10.0%
5.0%
5.0%
10.0%
5.0%
5.0%
10.0%
5.0%
5.0%
10.0%
1.75x
1.23x
2.56x
1.91x
21.14x
17.26
3.53x
2.82x
21.14x
17.26
4.04x
3.32x
21.14x
17.26
4.38x
3.66x
21.14x
17.26
4.60x
3.88x
21.14x
17.26
4.74x
4.02x
21.14x
17.26
68.7%
40.7%
2.96x
2.50x
61.5%
38.1%
3.61x
3.07x
1.72x
0.97x
2.73x
54.3%
35.2%
3.84x
3.26x
1.81x
1.26x
2.48x
47.0%
32.0%
4.25x
3.61x
1.86x
1.21x
2.22x
39.6%
28.4%
4.75x
4.04x
1.82x
1.16x
1.93x
32.3%
24.4%
5.46x
4.63x
1.81x
1.12x
1.63x
25.3%
20.2%
6.47x
5.49x
1.82x
1.10x
1.32x
3.12x
Operating Assumptions / Drivers
Ratio Analysis / Assumptions
7
144
145
146
147
148
Activity Ratios / Operating Ratios
Inventory Ratio (IR)
Inventory Ratio - Days
Fixed Asset Turnover Ratio
Asset Turnover Ratio
150
151
152
153
154
155
156
157
158
159
160
161
162
163
164
165
166
167
168
Profitability Ratios
Gross Margin
EBITDA Margin
EBIT Margin
Return on Assets (ROA)
Gross Return on Assets
Return on Equity (ROE)
Operating Assumptions
Cost of Revenues % of Revenues
U.S.
Europe
Asia
Operating Expense % of Revenues
Administrative & General
Marketing Expenses
Other Operating Expenses
Depreciation Expense % of Revenues
Tax Rate
2009
2010
2011
2012
2013
2014
2015
12.92x
28.24
0.407x
0.36x
12.92x
28.24
0.418x
0.36x
12.92x
28.24
0.430x
0.37x
12.92x
28.24
0.442x
0.37x
12.92x
28.24
0.454x
0.38x
12.92x
28.24
0.467x
0.39x
64.1%
40.1%
33.9%
62.2%
39.0%
33.2%
4.8%
11.8%
8.1%
62.1%
38.9%
33.1%
5.0%
11.9%
8.0%
62.0%
38.9%
33.0%
5.3%
12.1%
8.1%
61.9%
38.8%
32.9%
5.6%
12.3%
8.2%
61.9%
38.7%
32.9%
5.9%
12.6%
8.2%
61.8%
38.6%
32.8%
6.3%
12.8%
8.3%
27.5%
83.3%
62.5%
29.3%
82.1%
70.0%
29.3%
82.1%
70.0%
29.3%
82.1%
70.0%
29.3%
82.1%
70.0%
29.3%
82.1%
70.0%
29.3%
82.1%
70.0%
15.1%
7.8%
1.0%
6.3%
14.9%
7.2%
1.1%
5.9%
14.9%
7.2%
1.1%
5.9%
40%
14.9%
7.2%
1.1%
5.9%
40%
14.9%
7.2%
1.1%
5.9%
40%
14.9%
7.2%
1.1%
5.9%
40%
14.9%
7.2%
1.1%
5.9%
40%
Operating Assumptions / Drivers
Ratio Analysis / Assumptions
169
170
171
172
173
174
175
176
177
178
179
180
181
182
183
184
185
186
187
188
8
2009
2010
2011
2012
2013
2014
2015
Cash Flow Statement Assumptions as % of Revenues
Prepaid Expenses
1.0%
Accrued Income Taxes
1.3%
Accounts Payable
3.6%
Accrued Income Taxes
1.3%
Accrued Expenses
1.0%
Capital Expenditures
Deferred Income Taxes
1.3%
0.8%
0.9%
3.6%
0.9%
0.7%
11.3%
1.5%
0.8%
0.9%
3.6%
0.9%
0.7%
11.3%
1.5%
0.8%
0.9%
3.6%
0.9%
0.7%
11.3%
1.5%
0.8%
0.9%
3.6%
0.9%
0.7%
11.3%
1.5%
0.8%
0.9%
3.6%
0.9%
0.7%
11.3%
1.5%
0.8%
0.9%
3.6%
0.9%
0.7%
11.3%
1.5%
10,000
(10,000)
1,180,000
(20,000)
1,190,000
(10,000)
1,130,000
(50,000)
1,130,000
118,506
10.0%
1,060,000
(70,000)
1,060,000
112,531
10.0%
970,000
(90,000)
970,000
105,560
10.0%
860,000
(110,000)
860,000
96,598
10.0%
730,000
(130,000)
730,000
85,643
10.0%
178,506
182,531
195,560
206,598
215,643
Debt Assumptions
Short-term Outstanding Debt
Principal Payments - Short-Term
Long-term Outstanding Debt
Principal Payments - LongTerm
Total Outstanding
Interest Payments
Average Interest Rate
20,000
1,200,000
1,220,000
Total Interest + Principal payments (Debt Service)
Results
Historical
Income Statement (000's)
9
2009
Projections
2010
2011
2012
2013
2014
2015
50
51
52
53
54
55
56
57
58
59
60
Revenues by Geography
U.S.
Europe
Asia
Total Revenue
800,000
120,000
40,000
960,000
920,000
140,000
50,000
1,110,000
966,000
147,000
55,000
1,168,000
1,014,300
154,350
60,500
1,229,150
1,065,015
162,068
66,550
1,293,633
1,118,266
170,171
73,205
1,361,642
1,174,179
178,679
80,526
1,433,384
Cost of Revenues by Geography
U.S.
Europe
Asia
Total Cost of Revenue
220,000
100,000
25,000
345,000
270,000
115,000
35,000
420,000
283,500
120,750
38,500
442,750
297,675
126,788
42,350
466,813
312,559
133,127
46,585
492,271
328,187
139,783
51,244
519,213
344,596
146,772
56,368
547,736
62
63
64
65
66
67
68
69
70
Gross Profit
615,000
690,000
725,250
762,338
801,362
842,428
885,648
Operating Expenses
Administrative & General
Marketing Expenses
Other Operating Expenses
Total Operating Expenses
145,000
75,000
10,000
230,000
165,000
80,000
12,000
257,000
173,622
84,180
12,627
270,429
182,711
88,587
13,288
284,587
192,297
93,235
13,985
299,517
202,406
98,136
14,720
315,263
213,071
103,307
15,496
331,874
EBITDA
385,000
433,000
454,821
477,751
501,845
527,165
553,774
72
Depreciation
60,000
65,000
68,396
71,977
75,753
79,736
83,937
74
EBIT
325,000
368,000
386,425
405,773
426,092
447,429
469,837
76
Interest Expense
130,000
120,000
118,506
112,531
105,560
96,598
85,643
78
EBT
195,000
248,000
267,919
293,242
320,532
350,832
384,194
80
81
82
Taxes
78,000
99,200
107,167
117,297
128,213
140,333
153,678
117,000
148,800
160,751
175,945
192,319
210,499
230,516
Net Income
Results
Historical
Cash Flow Statement (000's)
86
87
88
89
10
Projections
2010
2011
(15,000)
(5,000)
1,000
5,000
(2,000)
(2,000)
(18,000)
Operating Cash Flow (OCF)
200,800
238,093
246,804
266,887
288,977
313,119
102
103
104
105
106
107
Investment Activities
Capital Expenditures
Investments (Change)
Total Financing Activities
(125,000)
(50,000)
(175,000)
(131,532)
(131,532)
(138,418)
(138,418)
(145,679)
(145,679)
(153,338)
(153,338)
(161,417)
(161,417)
25,800
106,561
108,386
121,207
135,639
151,702
109
110
111
112
113
Financing Activities
ST Debt Payments
LT Payments
Equity Contribution / (Dividend)
Total Financing Activities
(10,000)
(20,000)
24,200
(5,800)
(10,000)
(50,000)
(60,000)
(70,000)
(70,000)
(90,000)
(90,000)
(110,000)
(110,000)
(130,000)
(130,000)
115
Free Cash Flow
20,000
46,561
38,386
31,207
25,639
21,702
117
Beginning Cash
50,000
70,000
116,561
154,947
186,155
211,794
119
Ending Cash
70,000
116,561
154,947
186,155
211,794
233,496
(3,050)
(1,970)
(523)
2,324
581
465
(2,173)
210,499
79,736
1,042
291,277
2015
Working Capital Activities
Change in Accounts Receivable
Change in Inventory
Change in Prepaid Expenses
Change in Accounts Payable
Change in Accrued Income Taxes
Change in Accrued Expenses
Total Change in Working Capital
(2,892)
(1,862)
(496)
2,204
551
441
(2,055)
192,319
75,753
988
269,060
2014
91
92
93
94
95
96
97
98
99
100
4,757
740
(470)
2,090
523
418
8,057
175,945
71,977
937
248,859
2013
148,800
65,000
5,000
218,800
Cash Available Before Financing Activities
160,751
68,396
888
230,036
2012
Net Income
Plus Depreciation
Plus Deffered Taxes
Cash Income
(3,217)
(2,085)
(551)
2,451
613
490
(2,299)
230,516
83,937
1,099
315,552
(3,393)
(2,207)
(582)
2,585
646
517
(2,433)
Results
Historical
Balance Sheet (000's)
Current Assets
Cash
Accounts Receivable
Inventories
Prepaid Expenses
Total Current Assets
Property and Equipment
Land
Building
Furniture & Equipment
Total Gross P&E
Less Accumulated Depreciaition
Net P&E
Long-Term Investments
2009
Projections
2010
2011
2012
2013
2014
2015
50,000
45,000
30,000
10,000
135,000
70,000
60,000
35,000
9,000
174,000
116,561
55,243
34,260
9,470
215,535
154,947
58,135
36,122
9,966
259,171
186,155
61,185
38,092
10,489
295,921
211,794
64,402
40,177
11,040
327,413
233,496
67,795
42,384
11,622
355,297
2,500,000
450,000
50,000
3,000,000
(300,000)
2,700,000
2,500,000
550,000
75,000
3,125,000
(365,000)
2,760,000
3,256,532
(433,396)
2,823,135
3,394,949
(505,374)
2,889,576
3,540,629
(581,127)
2,959,502
3,693,967
(660,863)
3,033,104
3,855,384
(744,800)
3,110,584
200,000
250,000
250,000
250,000
250,000
250,000
250,000
3,035,000
3,184,000
3,288,670
3,398,747
3,505,423
3,610,517
3,715,881
35,000
12,000
10,000
20,000
77,000
40,000
10,000
8,000
10,000
68,000
42,090
10,523
8,418
61,031
44,294
11,073
8,859
64,226
46,617
11,654
9,323
67,595
49,068
12,267
9,814
71,149
51,653
12,913
10,331
74,898
1,200,000
1,180,000
1,130,000
1,060,000
970,000
860,000
730,000
12,000
17,000
17,888
18,825
19,812
20,854
21,953
Total Liabilties
1,289,000
1,265,000
1,208,919
1,143,051
1,057,408
952,003
826,850
Owners' Equity
Common Stock
Paid-in-Capital
Retained Earnings
Total Owners' Equity
1,000,000
746,000
1,746,000
1,000,000
24,200
894,800
1,919,000
1,000,000
24,200
1,055,551
2,079,751
1,000,000
24,200
1,231,496
2,255,696
1,000,000
24,200
1,423,815
2,448,015
1,000,000
24,200
1,634,315
2,658,515
1,000,000
24,200
1,864,831
2,889,031
Total Liabilities & Owner's Equity
3,035,000
3,184,000
3,288,670
3,398,747
3,505,423
3,610,517
3,715,881
Total Assets
Liabilities and Owners Equity
Current Liabilities
Accounts Payable
Accrued Income Taxes
Accrued Expenses
Current Portion of Long Term Debt
Total Current Liabilities
Long-Term Debt:
Deferred Income Taxes
11
Performance Measurements
12
Quick & Dirty Cash Flow
2012
% of Rev
192
193
194
195
Revenues
Less Cost of Revenue
Less Operating Expenses
EBITDA
1,229,150
(466,813)
(284,587)
477,751
100.0%
-38.0%
-23.2%
38.9%
197
198
199
200
201
Less Interest
Less Cash Taxes
Less Working Capital
Less Capex
Cash Flow Available for Debt Service
(112,531)
(116,360)
(2,055)
(138,418)
108,386
-9.2%
-9.5%
-0.2%
-11.3%
8.8%
203
204
Less Principal Payments
Free Cash Flow
(70,000)
38,386
-5.7%
3.1%
Performance Measurements

Solvency Ratios – Managing Debt
–
–

Profitability Ratios
–
–
–

Cost efficiencies / Cost Rationalization
Revenue Drivers / Acquisition Growth Rationale
Striving for Higher Margin Business
Activity Ratios
–
–
13
Leverage Ratio / Debt Capacity
Coverage Ratio / Adequate coverage of Obligations
Inventory Management
Working Capital Management