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Sumo Corp - Income Statement for 2012

Sales
COGS (70% of sales)
Operating expenses
EBIT
Interest expense
Taxable income
Tax (40% tax rate)
Net income
Dividend (1/3 of NI)
Addition to retained earnings

Planned growth rate (g)


Return on assets (ROA)
Return on Equity (ROE)
Retention Rate
Internal growth rate (gi)
Sustainable growth rate (g*)

2012
6,000.0
4,200.0
500.0
1,300.0
150.0
1,150.0
460.0
690.0
230.0
460.0

20.0%
11.5%
20.3%
66.7%
8.3%
15.6%

EFN with g = 20% and realistic assumptions


Sumo Corp - Pro-Forma Income Statement for 2013

Sales (+g%)
COGS (70% of sales)
Operating expenses (+ 5%)
EBIT
Interest expense (5% of beg. notes payable + LT debt)
Taxable income
Tax (40% tax rate)
Net income
Dividend (1/3 of NI)
Addition to retained earnings

EFN with g = 20% and simplifying assumptions:


i) Operating expenses grow at g
ii) Interest expenses grow at g

2012
6,000.0
4,200.0
500.0
1,300.0
150.0
1,150.0
460.0
690.0
230.0
460.0

2013F
7,200.0
5,040.0
525.0
1,635.0
100.0
1,535.0
614.0
921.0
307.0
614.0

iii) Accounts payable do not change

Sumo Corp - Por-Forma Income Statement for 2013

Sales (+g%)
COGS (70% of sales)
Operating expenses (+ g%)
EBIT
Interest expense (+ g%)
Taxable income
Tax (40% tax rate)
Net income
Dividend (1/3 of NI)
Addition to retained earnings

2012
6,000.0
4,200.0
500.0
1,300.0
150.0
1,150.0
460.0
690.0
230.0
460.0

2013F
7,200.0
5,040.0
600.0
1,560.0
180.0
1,380.0
552.0
828.0
276.0
552.0

2012
6,000.0
4,200.0
500.0
1,300.0
150.0
1,150.0
460.0
690.0
230.0
460.0

2013F
6,498.2
4,548.7
541.5
1,407.9
162.5
1,245.5
498.2
747.3
249.1
498.2

EFN with g = gi and simplifying assumptions


i) Operating expenses grow at g
ii) Interest expenses grow at g
iii) Accounts payable do not change

Sumo Corp - Por-Forma Income Statement for 2013

Sales (+g%)
COGS (70% of sales)
Operating expenses (+ g%)
EBIT
Interest expense (+ g%)
Taxable income
Tax (40% tax rate)
Net income
Dividend (1/3 of NI)
Addition to retained earnings

EFN with g = g* and simplifying assumptions


i) Operating expenses grow at g
ii) Interest expenses grow at g
iii) Accounts payable do not change

Sumo Corp - Por-Forma Income Statement for 2013

Sales (+g%)
COGS (70% of sales)
Operating expenses (+ g%)
EBIT
Interest expense (+ g%)
Taxable income
Tax (40% tax rate)
Net income
Dividend (1/3 of NI)
Addition to retained earnings

2012
6,000.0
4,200.0
500.0
1,300.0
150.0
1,150.0
460.0
690.0
230.0
460.0

2013F
6,938.8
4,857.1
578.2
1,503.4
173.5
1,329.9
532.0
798.0
266.0
532.0

Sumo Corp - Balance Sheet as of December 2012


Assets:
Cash
Accounts receivable
Inventory
Current assets

2012
320.0
880.0
1,200.0
2,400.0

Net fixed assets

3,600.0

Liabilities & Equity:


Accounts payable
Notes payable
Current liabilities
Long-term debt
Common stock
Retained earnings
Total equity

Total assets

6,000.0

Total liabilities and equity

Sumo Corp - Pro-Forma Balance Sheet as of December 2013

Sumo Corp - Pro-Forma Balance Sheet as of D

Assets:
Cash (+g%)
Accounts receivable (+g%)
Inventory (+g%)
Current assets

2012
320.0
880.0
1,200.0
2,400.0

2013F
384
1056
1440
2,880.0

Change
64.0
176.0
240.0
480.0

Liabilities & Equity:


Accounts payable (+g%)
Notes payable (no change)
Current liabilities

Net fixed assets (+g%)

3,600.0

4,320.0

720.0

Long-term debt (no change)


Common stock (no change)
Retained earnings
Total equity
Total assets

6,000.0

EFN =

7,200.0

466

1,200.0

Total liabilities and equity

Sumo Corp - Pro-Forma Balance Sheet as of December 2013


Assets:
Cash (+g%)
Accounts receivable (+g%)
Inventory (+g%)
Current assets

2012
320.0
880.0
1,200.0
2,400.0

2013F
384.0
1,056.0
1,440.0
2,880.0

Change
64.0
176.0
240.0
480.0

Net fixed assets (+g%)

3,600.0

4,320.0

720.0

Liabilities & Equity:


Accounts payable (no change)
Notes payable (no change)
Current liabilities
Long-term debt (no change)
Common stock (no change)
Retained earnings
Total equity

Total assets

6,000.0

EFN =

7,200.0

1,200.0

Total liabilities and equity

648

Sumo Corp - Pro-Forma Balance Sheet as of December 2013


Assets:
Cash (+g%)
Accounts receivable (+g%)
Inventory (+g%)
Current assets

2012
320.0
880.0
1,200.0
2,400.0

2013F
346.6
953.1
1,299.6
2,599.3

Change
26.6
73.1
99.6
199.3

Net fixed assets (+g%)

3,600.0

3,898.9

298.9

Liabilities & Equity:


Accounts payable (no change)
Notes payable (no change)
Current liabilities
Long-term debt (no change)
Common stock (no change)
Retained earnings
Total equity

Total assets

6,000.0

EFN =

6,498.2

498.2

Total liabilities and equity

Sumo Corp - Pro-Forma Balance Sheet as of December 2013


Assets:
Cash (+g%)
Accounts receivable (+g%)
Inventory (+g%)
Current assets

2012
320.0
880.0
1,200.0
2,400.0

2013F
370.1
1,017.7
1,387.8
2,775.5

Change
50.1
137.7
187.8
375.5

Net fixed assets (+g%)

3,600.0

4,163.3

563.3

Liabilities & Equity:


Accounts payable (no change)
Notes payable (no change)
Current liabilities
Long-term debt (no change)
Common stock (no change)
Retained earnings
Total equity

Total assets

6,000.0

EFN =

6,938.8

406.8

938.8

Total liabilities and equity

2012
600.0
200.0
800.0
1,800.0
1,400.0
2,000.0
3,400.0
6,000.0

Complete balance sheet - cover EFN with both LTD and Equity

Forma Balance Sheet as of December 2013


2012
600.0
200.0
800.0

2013F
720
200.0
920.0

1,800.0

1,800.0

1,400.0
2,000.0
3,400.0

1,400.0
2,614.00
4,014.0

6,000.0

6,734.0

Change
120.0
120.0
-

Sumo Corp - Pro-Forma Balance Sheet as of December 2013


Liabilities & Equity:
Accounts payable (+g%)
Notes payable (no change)
Current liabilities

2012
600.0
200.0
800.0

2013F
720
200.0
920.0

Long-term debt

1,800.0

2,033.0

614.0
614.0

Common stock
Retained earnings
Total equity

1,400.0
2,000.0
3,400.0

1,633.0
2,614.00
4,247.0

734.0

Total liabilities and equity

6,000.0

7,200.0

2012
600.0
200.0
800.0

2013F
600.0
200.0
800.0

Change
-

1,800.0

1,800.0

1,400.0
2,000.0
3,400.0

1,400.0
2,552.00
3,952.0

552.0
552.0

6,000.0

6,552.0

552.0

2012
600.0
200.0
800.0

2013F
600.0
200.0
800.0

Change
-

1,800.0

1,800.0

1,400.0
2,000.0
3,400.0

1,400.0
2,498.19
3,898.2

498.2
498.2

6,000.0

6,498.2

498.2

EFN from previous step =

406.8

Complete balance sheet - cover EFN by issuing debt


2012
600.0
200.0
800.0

2013F
600.0
200.0
800.0

1,800.0

1,800.0

1,400.0
2,000.0
3,400.0

1,400.0
2,532.0
3,932.0

6,000.0

6,532.0

Change
-

Accounts payable (no change)


Notes payable (no change)
Current liabilities

2012
600.0
200.0
800.0

2013F
600.0
200.0
800.0

Long-term debt (no change)

1,800.0

2,206.8

532.0
532.0

Common stock (no change)


Retained earnings
Total equity

1,400.0
2,000.0
3,400.0

1,400.0
2,532.0
3,932.0

532.0

Total liabilities and equity

6,000.0

6,938.8

D/E

76.5%

76.5%

th both LTD and Equity

as of December 2013
Change
120.0
120.0
233.0
233.0
614.0
847.0
1,200.0

issuing debt
Change
406.8
532.0
532.0
938.8

GOOGLE INC (IPO in 2004)


$ million
2004
2005
assets
3,313.4 10,271.8
equity
2,929.1
9,419.0
debt
384.3
852.9
cash
2,143.4
8,034.2
revenues
3,189.2
6,139.6
net income
399.1
1,465.4
dividends
stock issuance
1,195.0
4,372.3
ROA
12.0%
14.3%
ROE
13.6%
15.6%
r
100.0%
100.0%
D/A
11.6%
8.3%
cash/assets
64.7%
78.2%
92.5%
actual g
internal g
13.7%
16.6%
sustainable g
15.8%
18.4%
stock issuance/equity
149.3%

actual g
gi
g*
debt/assets
cash/assets
stock issuance

13.7%
15.8%
11.6%
64.7%
1,195.0

92.5%
16.6%
18.4%
8.3%
78.2%
4,372.3

2006
18,473.4
17,039.8
1,433.5
11,243.9
10,604.9
3,077.4
2,384.7
16.7%
18.1%
100.0%
7.8%
60.9%
72.7%
20.0%
22.0%
25.3%

72.7%
20.0%
22.0%
7.8%
60.9%
2,384.7

2007
25,335.8
22,689.7
2,646.1
14,218.6
16,594.0
4,203.7
23.9
16.6%
18.5%
100.0%
10.4%
56.1%
56.5%
19.9%
22.7%
0.1%

2008
31,767.6
28,238.9
3,528.7
15,845.8
21,795.6
4,226.9
71.5
13.3%
15.0%
100.0%
11.1%
49.9%
31.3%
15.3%
17.6%
-0.3%

56.5%
19.9%
22.7%
10.4%
56.1%
23.9 -

31.3%
15.3%
17.6%
11.1%
49.9%
71.5

Some Info for GOOGLE Inc


(no dividends, no LT borrowing)
100%

5000

stock issuance

90%

4500

80%
70%

internal growth rate

4000

sustainable growth rate

3500

Growth rates

3000
60%
2500
50%
2000
40%
1500
30%

1000

20%

500

10%

0%

-500
2005

2006

2007

2008

Stock issuance ($ Million)

actual growth rate

GOOGLE's Cash / Assets


90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2005

2006

2007

2008

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