Capstone Project I
#2. Do a ratio analysis of financial statements for startup
Title 2018 2019
Current ratio 1.92 2.37
Liquidity
Quick ratio 1.72 2.14
Ratio
Cash ratio 1.50 1.93
Total debt ratio 0.38 0.39
Leverage Long-term debt ratio 0.27 0.25
Ratio Times interest earned rati -4.89 -5.80
Cash coverage ratio 0.93 1.91
Inventory turnover 16.14 13.42
Efficiency Receivables turnover 12.26 11.65
Ratio Days' sales in inventory 5,889.66 4,898.98
Days' sales in receivables 29.76 31.32
Profit margin -29.21% -31.16%
Total asset turnover 1.15 0.94
Profitabitility
Equity multiplier 0.55 1.04
Ratio
Return on equity (ROE) -18.44% -30.20%
Return on assets (ROA) -33.50% -29.16%
Market Value Price-Earnings ratio (PER) -273.02 -213.85
Ratio Market-to-Book ratio (MB) 0.37 0.49 (Face value = INR 1)
Dupont Analysis -18.44% -30.20%
#3. Make Common-size Balance sheet and Income Statement.
Common-Size Balance Sheet
(INR Lacs) 2018 2019
Assets
Current Assets
Cash 6,406 10,873
Accounts receivable 919 1,214
Inventory 860 1,299
Total 8,185 13,386
Fixed Assets
Net plant and equipment 1,641 1,731
Total assets 9,826 15,117
Liabilities and Owners' Equity
Current liabilities 4,259 5,639
Total 4,259 5,639
Long-term and Short-term debt 6,869 5,707
Owners' equity
Common stock and paid-in surplus 3,078 3,111
Retained earnings 14,777 11,485
Total owners' equity 17,855 14,596
Total liabilities and owners' equity 28,983 25,942
Liabilities and Owners' Equity
Common-Size Income Statement
2018 2019
Sales 11,270.00 14,147.00
Cost of goods sold 13,877.00 17,435.00
Depreciation 126.00 472.00
Earnings before interest and taxes -2,733.00 -3,760.00
Interest paid 559.00 648.00
Taxable income -3,292.00 -4,408.00
Taxes (20%) - - (Taxes are carried forward due to loss
Net income -3,292.00 -4,408.00
Dividends - -
Addition to retained earnings -3,292.00 -4,408.00
rried forward due to loss in the current periods)
Capstone Project II — Sample Template
#1. Assume a sales growth rate, and estimate Sales each year for next 5 years for startup
#3. Estimate COGS (Cost of goods sold) each year for next 5 years for startup
#4. Estimate SG&A each year for next 5 years for startup
Assumptions
2015 F2016 F2017 F2018 F2019 F2020
Projected sales growth 3%
Cost of goods sold / Sales
SG&A
Payout ratio
Depreciation / Fixed Asset
Interest / Long-term debt
Tax rate
Projected Fixed asset turnover ratio
Permanent growth rate
Discount rate
Discount rate for Terminal Value
#2. Construct Pro Forma Financial Statements with External Funds Needed.
Pro Forma Balance Sheet
2015 F2016 F2017 F2018 F2019 F2020
Assets
Current Assets
Cash
Accounts receivable
Inventory
Total
Fixed Assets
Net plant and equipment
Total assets
Liabilities and Owners' Equity
Current liabilities
Total
Long-term and Short-term debt
Owners' equity
Common stock and paid-in surplus
Retained earnings
Total owners' equity
Total liabilities and owners' equity
EFN
Pro Forma Income Statement
2015 F2016 F2017 F2018 F2019 F2020
Sales
Cost of goods sold
SG&A
Depreciation
Earnings before interest and taxes
Interest paid
Taxable income
Taxes (20%)
Net income
Dividends
Addition to retained earnings
#5. Estimate free cash flows each year for next 5 years for startup
#6. Assuming the sales growth rate is 3% after year 5, estimate perpetual free cash flows in year 6.
FCF estimation 2015 F2016 F2017 F2018 F2019 F2020
EBIT
- Tax
+ Dep
Operating Cash Flow
- Net capital spending
- Change in NWC
Free Cash Flow
Terminal Value
Total Free Cash Flow
PV of Total Free Cash Flow
#7. Calculate internal growth rate and sustainable growth rate.
Internal growth rate 2015 F2016 F2017 F2018 F2019 F2020
ROA
retention ratio
Internal growth rate
Sustainable growth rate 2015 F2016 F2017 F2018 F2019 F2020
ROE
retention ratio
Sustainable growth rate
ws in year 6.
F2021
Capstone Project III — Sample Template
#1. Estimate terminal value using PER for startup.
Earnings per share
PER
Terminal value
#2. Estimate terminal value using PBR for startup.
Book value per share
PBR
Terminal value
#3. Estimate terminal value using PSR for startup.
Sales per share
PSR
Terminal value
#4. Find PV of terminal value using DCF approach.
Discount rate 15% LT growth rate 3%
Year 2015 F2016 F2017
FCF
Terminal value
PV of Terminal value
#5. Find the PV of free cash flows each year.
Discount rate 30%
Year 2015 F2016 F2017
FCF
PV of FCF
#6. Find the enterprise value and share price.
Shares outstanding 1,000,000
Enterprise value dollars
Share price dollars
#7.
Assumptions
New money from VC 1,000,000
Net income in 5 years
Comparable PER
Investment horizon (years) 5
Shares outstanding 1,000,000
VC required rate of return 50%
FV of VC investment at required return=
Value of company in 5 years =
VC's Ownership =
(1) What is the ownership of the founder?
(2) How many shares should VC purchase?
Price per share should VC agree to pay =
(3) What is the pre-money valuation of the firm?
(4) What is the post-money valuation of the firm?
F2018 F2019 F2020 F2021
F2018 F2019 F2020 F2021
dollars
dollars
*Hint
shares X/(SHOut+X)=VC's Ownership, X=VC's Ownership*SHOut/(1-VC's Ownership)
dollars P=VC investment / VC's shares
dollars PreV=Shout*P
dollars PostV=(Shout+VCshares)*P=PreV+NewMoney=
Out/(1-VC's Ownership)
Capstone Project IV — Sample Template
#1. Provide a hypothetical investment opportunity with operating assumptions.
Summary of Operating Assumptions (For example)
Sales revenue (Year 1) Opportunity costs
Sales growth % Iitial outlay
Costs/Revenue % Book salvage value
Tax rate Est. resale value
Discount rate NWC requirement
#2. Estimate yearly cash flows of the project.
Pro Forma Income Statement
Year 0 1 2
Sales revenue
Operating costs
Depreciation
EBIT
Taxes
Net Income
Cash Flows
Year 0 1 2
Operating Cash Flow
(-) CAPEX
(-) Chg. In NWC
NWC
(+) Salvage Value
Total Cash Flow
#3. Apply NPV, IRR, and payback period rule to determine whether you should take the project to impro
NPV
IRR
Payback Period
#4. Provide yearly sales forecasts in a good case scenario and in a bad case scenario, respectively.
<Sales Revenue>
Year 0 1 2
Good
Bad
#5. (1) Identify your assumption on the nature of real options embedded in your project.
(2) Re-estimate yearly cash flows of the project.
1) Good
Year 0 1 2
Sales revenue
Operating costs
Depreciation
EBIT
Taxes
Net Income
Cash Flows
Year 0 1 2
Operating Cash Flow
(-) CAPEX
(-) Chg. In NWC
NWC
(+) Salvage Value
Total Cash Flow
2) Bad
Pro Forma Income Statement
Year 0 1 2
Sales revenue
Operating costs
Depreciation
EBIT
Taxes
Net Income
Cash Flows
Year 0 1 2
Operating Cash Flow
(-) CAPEX
(-) Chg. In NWC
NWC
(+) Salvage Value
Total Cash Flow
(3) Find the value of the project using decision tree approach.
Discount rate
Year 0 1 2
CF for Good scenario
Prob = XX %
CF for Bad scenario
Prob = XX %
NPV
3 4 5
3 4 5
ould take the project to improve value of your startup.
e scenario, respectively.
3 4 5
n your project.
3 4 5
3 4 5
3 4 5
3 4 5
3 4 5
