Company name

Fortescue Metals Important: Before you run this spreadsheet, go into preferences

Numbers from your base year below:

There should be a check against the iteration box. If there is not,

Revenues

############## Trailing 12 months

Operating income or EBIT

############## Trailing 12 months

Book value of equity

##############

Book value of debt

############## 12/31/2011 + Leases

Cash

##############

31-Dec-13

Number of shares outstanding =

3113798151.00

31-Dec-13

Current stock price =

Tax rate =
The value drivers below:

5.34
30.00%

31-Dec-13

24-Apr-14
Tax rate from trailing 12 months

Compounded annual revenue growth rate over next 5 years = 5.00%

Revenue growth rate last year was 60%+.

Target pre-tax operating margin (EBIT as % of sales in year 10)

54.83%
=

Current margin is 34%

Sales to capital ratio (for computing reinvestment) =

Market numbers
Riskfree rate

2.12

Average for the sector

Revenue(Sales)/(CurrentAssets-Curr

3.93%

10 year Aus bond yield

http://www.bloomberg.com/markets/r

Initial cost of capital =

Other inputs

11.310%

Beta-2 yr adjusted

Number of options outstanding =

0.00

Last annual report

Average strike price =

$0.00

Last annual report

Average maturity =

0.00

Not available (I am assuming a remaining life of 2 years, since th

35.00%

Average standard deviation across social media companies that

Standard deviation on stock price =

1.23 Ref Pattersons Market wrap 26Feb

Default assumptions
I will assume that your firm will have a cost of capital similar to that of typical mature companies (riskfree rate + 4.5%)
Do you want to override this assumption =

Yes

Mature companies generally see their risk levels approach the a

If yes, enter the cost of capital after year 10 =

8%

Though some sectors, even in stable growth, may have higher ri

I will assume that your firm will earn a return on capital equal to its cost of capital after year 10
Do you want to override this assumption =

Yes

Mature companies find it difficult to generate returns that exceed

If yes, enter the return on capital you expect after year 10

15%

But there are significant exceptions among companies with long-

I will assume that your firm has no chance of failure in the next 10 years
Do you want to override this assumption =

Yes

Many young, growth companies fail, especially if they have troub

If yes, enter the probability of failure in the next 10 years =

20%

Tough to estimate but a key input.

I will asssume that you have no NOL coming into the valuation
Do you want to override this assumption =

No

If yes, enter the NOL that you are carrying over into year 1

$0.00

Some of the cash balance may be trapped overseas

Do you want to factor in the additional taxes on that cash?
How much cash is trapped overseas (in millions)?
Tax rate on overseas income

Yes
$30,000
15%

Check the financial statements.

An NOL will shield your income from taxes, even after you start m

his spreadsheet, go into preferences in Excel and check under Calculation options

gainst the iteration box. If there is not, you will get circular reasoning errors.

ear was 60%+.

Revenue(Sales)/(CurrentAssets-CurrentLiabilities)

http://www.bloomberg.com/markets/rates-bonds/government-bonds/australia/
Ref Pattersons Market wrap 26Feb

ng a remaining life of 2 years, since these options were issued as part of 2005 compensation plan)

n across social media companies that have been listed for the last year.

ee rate + 4.5%)

ly see their risk levels approach the average

n in stable growth, may have higher risk (which is my assumption with Groupon)

fficult to generate returns that exceed the cost of capital

ceptions among companies with long-lasting competitive advantages (and I am assuming that Groupon is one)

anies fail, especially if they have trouble raising cash (I am being optimistic and assuming that Groupon has no chance of failure)

ome from taxes, even after you start making money (and Groupon has NOLs)

Base year
Revenue growth rate
Revenues
EBIT (Operating) margin
EBIT (Operating income)
EBIT(1-t)
- Reinvestment
FCFF
NOL

###############
54.83%
###############
###############
$

WACC
Discount factor
PV(FCFF)
Terminal cash flow
Terminal Cost of capital
Terminal value
PV(Terminal value)
PV (CF over next 10
Sum of PV
Probability of failure =
Value of operating assets
Debt
Cash
Tax on Trapped Cash
Value of equity
- Value of options
Value of equity in
common stock
Number of shares
Estimated value /share
Price on IPO
Price as % of value
Implied variables
Sales to capital ratio
Invested capital
ROIC

5.00%
###############
49.34%
###############
###############
$ 276,500,000.00
###############
$
-

5.00%
###############
44.41%
###############
###############
$ 290,325,000.00
###############
$
-

5.00%
###############
42.19%
###############
###############
$ 304,841,250.00
###############
$
-

11.31%
11.31%
11.31%
0.898
0.807
0.725
############### ############### ###############
###############
8.00%
###############
###############
###############
###############
20.00%
###############
###############
###############
$
6,000.00
###############
$0.00

26
101.7
91.53
86.9535

###############
3,113,798,151.00
$
12.73
$
5.34
41.93%

2.12
2.12
2.12
$ 17,869,000,000 $ 18,145,500,000 $ 18,435,825,000 $ 18,740,666,250
25.23%
23.48%
21.84%
21.43%

5.00%
###############
42.19%
###############
###############
$ 320,083,312.50
###############
$
-

5.00%
###############
42.19%
###############
###############
$ 336,087,478.13
###############
$
-

4.79%
###############
42.19%
###############
###############
$ 337,788,080.76
###############
$
-

4.57%
###############
42.19%
###############
###############
$ 338,127,980.55
###############
$
-

4.36%
###############
42.19%
###############
###############
$ 337,036,960.18
###############
$
-

4.14%
###############
42.19%
###############
###############
$ 334,453,540.17
###############
$
-

11.31%
11.31%
10.65%
9.99%
9.32%
8.66%
0.651
0.585
0.529
0.481
0.440
0.405
############### ############### ############### ############### ############### ###############

2.12
2.12
2.12
2.12
2.12
2.12
$ 19,060,749,563 $ 19,396,837,041 $ 19,734,625,121 $ 20,072,753,102 $ 20,409,790,062 $ 20,744,243,602
22.12%
22.82%
23.51%
24.17%
24.81%
25.42%

10
3.93%
###############
42.19%
###############
###############
$ 330,326,073.57
###############
$
8.00%
0.375
###############

Terminal year
3.93%
###############
42.19%
###############
###############
###############
###############
$
8.00%

After year 10
2.12
$ 21,074,569,676
26.00%

15.00%

VALUATION DIAGNOSTICS
Invested capital at start of valuation
##########
Invested capital at end of valuation
##########
Change in invested capital over 10 years
##########
Change in EBIT*(1t) (after-tax operating income) over 10 years
##########
Marginal ROIC over 10 years
43.31%
ROIC at end of valuation
26.00%
Average WACC over the 10 years
10.32%
Your calculated value as a percent of current price
238.48%
Value seems high. See below
If calculated
value is
Inputs
negative or
looks too low
Increase
Revenue growth rate
revenue
growth rate
Last period EBIT as % of revenue
42%
Last period EBIT as % of revenue needed to earn cost of capital
16.74%

s high. See below

If calculated value looks too high

Decrease revenue growth rate

Decrease margin until return in year 10 = cost of capital

Valuing Options or Warrants

Enter the current stock price =
$
5.34
Enter the strike price on the option =
$
Enter the expiration of the option =
0.00
Enter the standard deviation in stock prices =
35.00% (volatility)
Enter the annualized dividend yield on stock =
0.00%
Enter the treasury bond rate =
3.93%
Enter the number of warrants (options) outstanding =0.00
Enter the number of shares outstanding = ##########
Do not input any numbers below this line
VALUING WARRANTS WHEN THERE IS DILUTION
Stock Price=
5.34 # Warrants issued=
0
Strike Price=
0 # Shares outstanding=
##########
Adjusted S =
#DIV/0! T.Bond rate=
3.93%
Adjusted K =
0 Variance=
0.1225
Expiration (in years) =
0 Annualized dividend yield=
0.00%
Div. Adj. interest rate=
3.93%
d1 =
N (d1) =

#DIV/0!
#DIV/0!

d2 =
N (d2) =

#DIV/0!
#DIV/0!

Value per option =

#DIV/0!
Value of all options outstanding =

#DIV/0!

Industry Name

Number of firms Levered Beta Unlevered Beta

Std Dev: Equity Market D/E

Advertising

31

2.02

1.75

101.29%

43.26%

Aerospace/Defense

64

1.10

1.03

61.32%

25.66%

Air Transport

36

1.21

1.10

64.80%

24.32%

Apparel

57

1.30

1.22

88.82%

18.38%

Auto Parts

51

1.70

1.59

80.58%

27.65%

Automotive

12

1.59

0.96

68.91%

134.57%

Bank

426

0.77

0.38

61.15%

156.11%

Bank (Midwest)

45

0.93

0.73

55.60%

59.52%

Beverage

34

0.88

0.77

66.05%

26.52%

Biotechnology

158

1.03

1.16

113.11%

13.48%

Building Materials

45

1.50

0.89

78.83%

94.33%

Cable TV

21

1.37

0.98

50.77%

68.06%

Chemical (Basic)

16

1.36

1.24

49.27%

27.35%

Chemical (Diversified)

31

1.51

1.39

56.31%

22.37%

Chemical (Specialty)

70

1.28

1.15

71.60%

21.15%

Coal

20

1.53

1.32

55.52%

28.90%

Computer Software

184

1.04

1.18

82.03%

7.49%

Computers/Peripherals

87

1.30

1.33

97.69%

10.23%

Diversified Co.

107

1.14

0.71

75.00%

102.24%

Drug

279

1.12

1.08

103.44%

15.46%

E-Commerce

57

1.03

1.08

88.13%

6.40%

Educational Services

34

0.83

0.92

78.24%

12.33%

Electric Util. (Central)

21

0.75

0.48

23.37%

86.16%

Electric Utility (East)

21

0.70

0.49

18.30%

66.16%

Electric Utility (West)

14

0.75

0.49

19.85%

84.54%

Electrical Equipment

68

1.33

1.35

67.76%

12.66%

Electronics

139

1.07

1.08

89.93%

22.33%

Engineering & Const

25

1.22

1.39

65.03%

11.99%

Entertainment

77

1.63

1.31

108.37%

40.99%

Entertainment Tech

40

1.23

1.48

76.91%

9.76%

Environmental

82

0.81

0.60

92.14%

43.70%

Financial Svcs. (Div.)

225

1.31

0.50

82.27%

251.49%

Food Processing

112

0.91

0.77

60.68%

29.53%

1.09

1.24

35.40%

42.09%

Funeral Services

1.14

0.85

39.35%

56.60%

Furn/Home Furnishings

35

1.81

1.65

80.90%

24.39%

Healthcare Information

25

1.17

1.20

65.79%

6.35%

Heavy Truck & Equip

21

1.80

1.48

69.92%

43.66%

Homebuilding

23

1.45

1.02

70.00%

100.28%

Hotel/Gaming

51

1.74

1.28

79.09%

52.07%

Household Products

26

1.07

0.95

62.24%

18.99%

Human Resources

23

1.24

1.40

78.27%

10.31%

Industrial Services

137

0.93

0.81

74.43%

32.71%

Foreign Electronics

Information Services

27

1.07

0.89

48.10%

30.21%

Insurance (Life)

30

1.58

1.54

53.35%

64.14%

Insurance (Prop/Cas.)

49

0.91

1.01

37.88%

23.60%

Internet

186

1.09

1.24

117.09%

2.71%

IT Services

60

1.06

1.14

69.45%

6.09%

Machinery

100

1.20

1.14

57.21%

19.12%

Maritime

52

1.40

0.58

69.19%

170.38%

Med Supp Invasive

83

0.85

0.80

79.18%

16.08%

Med Supp Non-Invasive

146

1.03

1.07

84.89%

13.02%

Medical Services

122

0.91

0.78

76.26%

49.45%

Metal Fabricating

24

1.59

1.63

68.98%

15.49%

Metals & Mining (Div.)

73

1.33

1.28

104.38%

14.10%

Natural Gas (Div.)

29

1.33

1.06

48.77%

37.07%

Natural Gas Utility

22

0.66

0.46

24.90%

67.38%

Newspaper

13

1.76

1.42

90.74%

46.35%

Office Equip/Supplies

24

1.38

1.04

64.26%

63.03%

Oil/Gas Distribution

13

0.96

0.65

56.61%

58.30%

Oilfield Svcs/Equip.

93

1.55

1.39

62.37%

22.92%

Packaging & Container

26

1.16

0.88

41.59%

51.82%

Paper/Forest Products

32

1.36

0.96

93.84%

59.86%

Petroleum (Integrated)

20

1.18

1.12

38.99%

19.19%

Petroleum (Producing)

176

1.34

1.13

88.11%

24.88%

Pharmacy Services

19

1.12

1.00

59.43%

20.48%

Pipeline MLPs

27

0.98

0.72

34.90%

40.97%

Power

93

1.35

0.65

97.19%

148.82%

Precious Metals

84

1.15

1.14

90.87%

8.20%

Precision Instrument

77

1.28

1.33

65.33%

15.94%

Property Management

31

1.13

0.59

82.21%

140.63%

Public/Private Equity

11

2.18

1.62

77.54%

59.87%

Publishing

24

1.25

0.89

64.98%

63.28%

R.E.I.T.

1.47

1.15

49.61%

34.71%

Railroad

12

1.44

1.24

42.95%

25.15%

Recreation

56

1.45

1.11

70.55%

48.69%

Reinsurance

13

0.93

1.05

30.40%

23.54%

Restaurant

63

1.27

1.19

68.37%

12.77%

Retail (Hardlines)

75

1.77

1.65

92.79%

24.33%

Retail (Softlines)

47

1.44

1.57

60.91%

5.61%

Retail Automotive

20

1.37

1.12

52.02%

38.11%

Retail Building Supply

1.04

0.97

37.61%

14.06%

Retail Store

37

1.29

1.14

67.71%

25.58%

Retail/Wholesale Food

30

0.75

0.64

40.02%

41.34%

Securities Brokerage

28

1.20

0.43

44.31%

430.56%

Semiconductor

141

1.50

1.69

70.52%

8.35%

Semiconductor Equip

12

1.79

2.42

68.70%

15.20%

Shoe

19

1.25

1.38

55.52%

2.18%

Steel

32

1.68

1.40

56.94%

46.40%

Telecom. Equipment

99

1.02

1.28

87.77%

12.96%

Telecom. Services

74

0.98

0.82

68.58%

34.09%

Telecom. Utility

25

0.88

0.54

60.40%

96.15%

Thrift

148

0.71

0.75

53.93%

29.33%

Tobacco

11

0.85

0.78

41.53%

18.71%

Toiletries/Cosmetics

15

1.30

1.20

60.34%

20.64%

Trucking

36

1.24

1.08

59.88%

27.77%

Utility (Foreign)

0.96

0.48

32.68%

155.03%

Water Utility

11

0.66

0.43

18.89%

81.42%

57
5891

1.27
1.15

1.12
0.92

75.03%
75.08%

27.06%
46.64%

Wireless Networking
Total Market

Market Debt/Capital
ROE

ROC

Effective Tax
Pre-tax
RateOperating
After-tax Margin
Operating
Net Margin
Margin

Cap Ex/ Depreciation

30.20%

8.89%

10.54%

10.73% 10.27%

7.44%

3.63%

54.18%

20.42%

34.00%

18.53%

20.72% 10.16%

7.31%

6.78%

126.28%

19.56%

######

16.45%

20.54%

8.78%

6.86%

3.76%

122.22%

15.53%

17.34%

14.02%

16.08% 10.97%

7.60%

6.72%

103.24%

21.66%

22.59%

15.82%

18.99%

6.49%

4.98%

5.10%

96.08%

57.37%

18.46%

6.96%

24.07%

6.99%

4.94%

3.36%

87.04%

60.95%

7.60%

NA

15.97%

NA

NA

NA

NA

37.31%

9.08%

NA

17.77%

NA

NA

NA

NA

20.96%

24.58%

12.95%

19.14% 20.45%

15.60%

13.99%

87.24%

11.88%

15.15%

-13.33%

2.49%

-7.79%

-13.73%

9.11%

84.42%

48.54%

-5.17%

2.58%

11.17%

4.17%

3.16%

-4.01%

48.00%

40.50%

16.13%

8.80%

27.35% 19.58%

12.43%

9.02%

85.32%

21.47%

25.83%

13.66%

20.90% 12.09%

9.56%

12.46%

126.81%

18.28%

19.26%

13.81%

21.73% 13.20%

9.30%

8.79%

104.37%

17.46%

18.50%

12.25%

17.58% 11.10%

7.87%

8.04%

96.78%

22.42%

24.24%

15.26%

12.75% 15.94%

12.53%

12.00%

141.73%

6.97%

79.13%

45.06%

12.27% 31.35%

24.62%

24.78%

64.72%

9.28%

52.52%

32.09%

11.77% 14.15%

10.83%

10.74%

103.58%

50.55%

33.28%

8.01%

15.55% 14.09%

11.76%

9.21%

89.24%

13.39%

22.64%

15.02%

5.36%

21.91%

16.96%

17.99%

37.39%

6.02%

16.47%

13.08%

12.33% 14.39%

10.87%

10.73%

128.44%

10.97%

53.22%

34.34%

25.17% 20.80%

12.91%

11.86%

131.38%

46.28%

10.77%

6.38%

31.82% 17.72%

11.58%

8.89%

158.54%

39.82%

11.91%

6.89%

33.14% 19.13%

12.66%

9.77%

201.07%

45.81%

9.88%

6.11%

31.30% 16.79%

11.38%

8.53%

210.61%

11.24%

23.02%

15.03%

17.02% 13.19%

9.95%

12.12%

86.14%

18.25%

22.20%

15.72%

10.36%

5.99%

4.48%

4.63%

103.97%

10.71%

15.44%

13.58%

26.26%

4.72%

3.35%

3.47%

84.23%

29.07%

11.46%

9.45%

15.38% 17.72%

12.17%

10.12%

79.38%

8.89%

15.08%

11.69%

11.59% 10.48%

9.04%

9.62%

78.89%

30.41%

11.00%

7.56%

11.71% 15.22%

9.48%

7.53%

96.46%

71.55%

######

5.95%

19.18% 43.49%

33.84%

5.08%

312.33%

22.80%

17.85%

11.88%

20.00%

9.08%

6.52%

5.36%

139.77%

29.62%

6.25%

7.83%

35.12%

5.27%

3.23%

1.83%

73.66%

36.14%

12.34%

7.81%

30.84% 15.64%

9.82%

7.48%

78.63%

19.61%

11.66%

9.50%

20.43%

6.43%

4.58%

3.76%

65.82%

5.97%

11.00%

9.45%

22.19% 12.11%

7.64%

8.81%

58.33%

30.39%

30.24%

10.88%

20.62%

9.13%

6.64%

8.48%

99.81%

50.07%

-35.82%

-2.09%

5.12%

-1.56%

-2.09%

-5.64%

59.80%

34.24%

5.64%

6.95%

14.53% 12.61%

10.13%

6.29%

109.45%

15.96%

21.80%

14.52%

25.12% 17.38%

12.79%

11.66%

117.15%

9.35%

7.25%

7.67%

25.35%

1.18%

1.66%

69.60%

24.65%

13.76%

-53.50%

3.26%

127.45%

1.91%

19.03% -21.40% -23.67%

23.20%

15.60%

10.83%

18.93% 19.33%

15.06%

11.94%

64.40%

39.08%

10.45%

NA

28.04%

NA

NA

NA

19.10%

13.32%

NA

19.36%

NA

2.63%

39.73%

32.75%

6.87%

18.25%

NA

NA

9812.35%

14.58%

16.00%

154.37%

5.74%

36.11%

26.95%

19.15% 14.43%

10.32%

10.59%

76.10%

16.05%

14.59%

12.60%

63.01%

4.88%

4.76%

22.15% 11.05%

8.22%

7.26%

75.32%

5.55%

14.81%

13.69%

0.78%

316.85%

13.85%

22.13%

15.88%

11.86% 22.22%

17.28%

16.64%

84.88%

11.52%
33.09%

29.56%

19.24%

12.73%

6.48%

4.81%

4.89%

78.77%

32.81%

18.55%

19.93% 11.11%

7.39%

4.84%

91.90%

13.41%

18.66%

14.78%

26.55% 15.07%

10.89%

7.84%

154.15%

12.36%

24.79%

19.48%

11.04% 31.57%

21.88%

7.36%

158.10%

27.04%

9.04%

7.10%

21.98% 28.94%

17.50%

12.72%

297.08%

40.26%

10.98%

8.09%

30.16% 12.80%

8.57%

5.10%

184.03%

31.67%

16.73%

11.05%

25.13% 14.59%

9.02%

3.11%

45.60%

38.66%

18.05%

10.36%

21.05%

6.65%

4.59%

4.07%

61.17%

36.83%

11.35%

6.83%

13.70% 18.45%

14.46%

9.80%

280.22%

18.64%

10.48%

8.54%

17.39% 15.11%

11.28%

10.72%

143.22%

34.13%

17.52%

10.40%

24.23% 10.12%

7.02%

13.46%

92.61%

37.45%

8.40%

11.01%

10.61% 12.01%

9.84%

4.63%

54.63%

16.10%

14.76%

10.08%

27.41%

9.76%

5.65%

7.99%

192.87%

19.92%

9.46%

13.50%

11.14% 25.74%

19.10%

10.69%

192.31%

17.00%

14.82%

11.18%

24.67%

3.14%

2.91%

99.52%

29.06%

12.71%

8.60%

6.37%

8.95%

8.68%

7.11%

184.61%

59.81%

6.95%

7.56%

8.66%

14.54%

10.88%

1.49%

181.13%

7.57%

9.09%

9.57%

7.51%

33.30%

24.02%

30.24%

203.00%

13.75%

15.37%

12.10%

13.94% 10.74%

8.80%

9.57%

48.46%

58.44%

10.74%

5.18%

18.59% 15.63%

12.95%

9.18%

227.63%

37.45%

35.96%

-0.14%

3.79%

-2.58%

-0.48%

62.30%

554.33%

38.76%

31.94%

11.38%

18.55% 12.10%

8.33%

6.22%

75.65%

25.77%

15.58%

14.07%

1.04% ####### 126.01%

113.55%

89.50%

20.09%

16.43%

11.10%

23.74% 28.43%

18.56%

17.86%

175.52%

32.75%

11.06%

8.26%

17.37% 11.51%

9.26%

7.28%

174.70%

19.06%

13.29%

NA

NA

NA

NA

11.32%

38.25%

20.32%

21.57% 15.82%

11.17%

10.70%

124.28%

19.57%

22.91%

14.99%

23.04%

7.50%

4.99%

3.86%

219.62%

5.32%

36.27%

28.74%

24.64%

9.39%

5.82%

5.56%

96.55%

27.59%

20.53%

9.89%

34.43%

6.88%

4.46%

4.35%

140.44%

12.33%

16.06%

12.18%

31.39%

8.13%

5.13%

5.14%

78.27%

20.37%

21.01%

13.60%

25.02%

5.84%

3.83%

3.45%

129.02%

29.25%

16.43%

10.38%

31.21%

3.18%

2.07%

4.16%

120.58%

81.15%

NA

10.39%

26.22% 48.78%

35.58%

11.45%

86.69%

7.70%

39.10%

28.41%

11.01% 22.76%

18.13%

17.82%

108.32%

13.20%

65.76%

40.44%

15.17% 21.65%

18.30%

16.30%

105.87%

7.22%

NA

5.11%

NA

2.13%

30.49%

27.41%

24.31% 11.34%

8.22%

8.44%

123.84%

31.69%

7.28%

5.94%

21.03%

4.90%

3.52%

66.43%

11.48%

29.93%

23.30%

13.16% 10.87%

8.53%

7.22%

60.98%

25.42%

16.47%

13.70%

14.22% 22.74%

16.56%

5.11%

95.55%

49.02%

18.29%

8.34%

29.42% 15.83%

11.21%

8.50%

76.44%

12.43%

5.83%

22.68%

-2.14%

NA

NA

NA

NA

15.76%

74.21%

27.98%

31.03% 20.61%

NA

15.24%

8.46%

64.69%

17.11%

62.53%

19.54%

20.30% 10.85%

7.24%

7.37%

114.16%

21.73%

8.19%

9.07%

25.48%

6.37%

4.20%

2.74%

156.92%

60.79%

3.12%

4.56%

26.07% 11.60%

7.81%

0.55%

164.69%

44.88%

8.44%

5.42%

35.22% 26.61%

18.05%

12.25%

250.02%

21.30%
31.81%

21.34%
16.07%

-18.21%
12.21%

12.12% -11.47% -15.91%

15.48% 17.24% 12.62%

7.96%
8.32%

85.53%
125.47%

Non-cash WC/Payout
Revenues
Ratio

Reinvestment Sales/Capital
Rate
EV/Sales

-19.84%

43.75%

-46.14%

1.42

1.14

2.89%

29.13%

14.77%

2.53

0.93

-9.25%

18.91%

5.54%

2.40

1.78

17.24%

18.85%

22.13%

1.85

1.19

5.59%

23.74%

15.16%

3.18

0.59

19.37%

22.24%

-22.37%

1.41

0.73

NA

33.53%

0.00%

NA

NA

NA

38.36%

0.00%

NA

NA

1.08%

46.35%

-2.46%

0.83

3.03

-5.83%

59.34%

NA

0.97

4.49

7.66%

NA

-106.83%

0.82

1.22

-9.65%

18.03%

-30.82%

0.71

2.21

9.68%

30.79%

29.24%

1.43

1.52

15.58%

31.68%

47.92%

1.48

1.62

12.60%

40.43%

12.99%

1.56

1.56

3.61%

33.78%

37.48%

1.22

1.78

-11.16%

21.61%

-9.05%

1.83

3.07

-1.97%

8.61%

1.22%

2.96

1.39

71.65%

36.81%

1.67%

0.68

2.11

7.53%

49.12%

-28.69%

0.89

2.85

-11.60%

1.89%

-2.56%

1.20

4.55

-7.82%

2.83%

8.07%

2.66

1.14

8.98%

63.88%

56.89%

0.55

2.26

8.33%

66.22%

82.35%

0.54

2.51

-0.59%

56.70%

117.43%

0.54

2.19

12.28%

29.40%

9.17%

1.51

1.54

10.63%

11.97%

18.61%

3.51

0.47

3.30%

6.31%

-9.01%

4.05

0.46

1.72%

25.84%

-9.30%

0.78

1.89

-17.91%

11.57%

-25.03%

1.29

1.87

0.48%

46.73%

-0.26%

0.80

2.07

11.08%

NA

13.38%

0.18

6.67

8.01%

45.25%

25.88%

1.82

1.08

1.47%

51.37%

-39.15%

2.43

0.37

3.76%

49.81%

-3.51%

0.79

1.86

13.45%

27.83%

-12.43%

2.08

0.92

2.00%

12.22%

-40.14%

1.24

3.82

24.35%

34.22%

94.67%

1.64

1.34

76.53%

NA

NA

1.00

1.23

-2.12%

40.37%

-0.79%

0.69

2.58

4.70%

48.97%

5.97%

1.13

2.21

4.81%

50.59%

27.53%

6.48

0.29

10.25%

24.98%

NA

2.26

0.85

Cost of capital

11.42%
7.30%
7.93%
8.77%
10.27%
6.57%
4.27%
5.74%
6.35%
7.81%
7.31%
7.03%
8.41%
9.48%
8.46%
9.26%
7.87%
9.21%
5.98%
8.22%
7.83%
6.47%
4.19%
4.29%
4.21%
9.14%
7.51%
8.57%
9.76%
8.79%
5.99%
5.30%
6.32%
6.51%
6.29%
10.98%
8.60%
9.82%
7.14%
9.26%
7.40%
8.73%
6.43%

-1.61%

38.73%

-23.97%

0.72

2.94

NA

29.39%

0.24%

NA

NA

NA

23.46%

57.73%

NA

NA

-8.44%

0.66%

4.82%

2.25

3.91

2.88%

32.87%

-4.73%

2.61

1.75

16.27%

25.38%

8.44%

1.53

1.37

3.32%

25.25%

215.04%

0.35

2.69

22.14%

22.91%

1.50%

0.92

2.52

3.04%

37.29%

-3.21%

4.00

0.73

-5.59%

8.82%

-25.53%

2.51

0.68

18.02%

25.70%

32.62%

1.36

1.67

6.22%

33.51%

23.26%

0.89

2.47

-4.26%

33.81%

276.48%

0.41

3.37

5.53%

67.28%

49.96%

0.94

1.45

-3.13%

14.56%

-32.30%

1.23

1.31

6.78%

28.06%

-20.89%

2.26

0.55

-0.01%

73.98%

124.00%

0.47

3.56

16.89%

41.88%

70.61%

0.76

2.38

9.01%

24.38%

108.81%

1.48

1.06

10.19%

43.21%

-26.89%

1.12

1.06

1.98%

38.99%

87.67%

1.78

0.87

2.28%

9.50%

64.09%

0.71

2.20

3.68%

20.26%

5.55%

3.56

0.53

0.88%

33.53%

43.79%

0.99

1.97

10.94%

13.75%

64.25%

0.69

1.48

7.21%

26.71%

62.24%

0.40

5.33

15.14%

11.24%

2.04%

1.38

1.64

-3.02%

27.66%

137.37%

0.40

2.85

31.62%

17.28%

NA

0.30

3.43

0.81%

25.02%

-8.51%

1.37

1.15

-10.12%

91.36%

-1.96%

0.11

14.13

-1.76%

34.63%

36.17%

0.60

3.44

-0.96%

42.67%

50.56%

0.89

1.60

NA

15.87%

50.50%

NA

NA

-4.82%

46.73%

8.36%

1.82

2.50

8.40%

19.62%

86.40%

3.00

0.83

3.40%

21.08%

0.99%

4.94

0.87

13.56%

2.49%

40.76%

2.22

0.92

5.88%

47.32%

-6.28%

2.37

1.04

0.88%

29.16%

14.97%

3.55

0.59

-0.01%

28.62%

23.06%

5.02

0.35

123.16%

10.93%

-126.66%

0.29

3.08

6.93%

30.53%

5.83%

1.57

2.06

12.51%

11.30%

2.58%

2.21

0.97

6.95%
7.91%
6.40%
8.37%
7.96%
8.07%
6.11%
6.50%
7.60%
5.97%
10.32%
9.31%
7.81%
4.16%
9.72%
7.27%
5.92%
9.66%
6.58%
7.94%
7.89%
8.76%
7.60%
6.32%
6.69%
8.47%
8.71%
5.70%
10.78%
6.82%
8.70%
8.88%
8.19%
6.55%
8.79%
10.84%
10.13%
7.95%
7.41%
8.27%
5.10%
3.43%
10.36%
11.46%

16.28%

25.89%

19.07%

3.33

1.52

11.41%

34.26%

-6.39%

1.21

0.78

-3.38%

53.72%

-21.25%

2.73

1.25

-12.38%

43.63%

-5.54%

0.83

1.85

-7.76%

80.94%

-37.32%

0.74

1.75

NA

NA

0.00%

NA

NA

-2.44%

67.56%

-4.20%

1.84

2.36

8.55%

25.04%

13.39%

2.70

1.48

5.03%

41.07%

94.07%

2.16

1.28

7.52%

0.32%

132.29%

0.58

1.39

7.51%

48.16%

107.15%

0.30

4.39

7.62%
7.01%

9.13%
37.92%

NA
8.65%

1.14
0.97

1.91
1.67

9.28%
9.06%
7.52%
6.65%
4.82%
5.44%
6.23%
8.53%
7.89%
4.30%
3.91%
8.23%
7.05%

Operating Lease Converter

Operating lease expenses are really financial expenses, and should be treated as such. Accounting standards allow th
be treated as operating expenses. This program will convert commitments to make operating leases into debt and
adjust the operating income accordingly, by adding back the imputed interest expense on this debt.
Inputs
Operating lease expense in current year =
$
Operating Lease Commitments (From footnote to financials)
Year
Commitment ! Year 1 is next year, .
1
$ 338.00
2
$ 365.00
3
$ 362.00
4
$ 345.00
5
$ 320.00
6 and beyond $ 1,302.00
Pre-tax Cost of Debt =

338.00

4.00%

From the current financial statements, enter the following

Reported Operating Income (EBIT) =
$ 10,000.00 ! This is the EBIT reported in the current income statement
Reported Debt =
$ 25,000.00 ! This is the interest-bearing debt reported on the balance sheet
Reported Interest Expenses =
$ 2,000.00
Output
Number of years embedded in yr 6 estimate =
4
! I use the average lease expense over the first five years
to estimate the number of years of expenses in yr 6
Converting Operating Leases into debt
Year
Commitment Present Value
1 $ 338.00 $ 325.00
2 $ 365.00 $ 337.46
3 $ 362.00 $ 321.82
4 $ 345.00 $ 294.91
5 $ 320.00 $ 263.02
6 and beyond $ 325.50 $ 971.13 ! Commitment beyond year 6 converted into an annuity for ten years
Debt Value of leases =
$ 2,513.34
Restated Financials
Operating Income with Operating leases reclassified as debt =
Debt with Operating leases reclassified as debt =

$ 10,100.53
$ 27,513.34

se on this debt.

come statement
on the balance sheet