Case study - Nelson nurseries Flashcards
What methods can we use to understand how a business is doing?
1) Assess sales growth
2) Growth in bottom line profit
3) Assessment of cash in the bank
4) Working capital management.
What are the operating cash flows?
Net income + non - cash expenses ( depreciation and amortisation) +/- change in NWC.
Operating cash flow (OCF) represents the cash generated by a company’s normal business operations
FCF formula based on operating cash flows?
FCF = OCF - CAPEX - ( CHANGE IN NWC)
What is the CCC and meaning?
Inventory days + receivable days - payable days
This is the time it takes to convert £1 invested in your operations back into sales.
What is the formula for inventory days, payable days and receivable days ratio?
Inventory days = inventory / cost of goods sold x 365
Payables days = payables / purchases x 365
Receivables / revenue x 365.
How to forecast income statement?
1) Estimate sales growth and apply this to COGS
2) Use any estimates given to you
3) Expenses increase at the same rate as sales ( unless told otherwise)
How to forecast balance sheet?
1) Use inventory/ receivables/ payable days to forecast new AP/INVENTORY/AR.
2) For other CA/CL - increase by same as sales rise.
3) Net fixed assets = net fixed assets ( t-1) + CAPEX - Depreciation.
4) purchases ( increase by sales increase_)
5) Equity = Equity( t-1) + profit( expected)
6) Work out cash using the fact that assets = liability + equity. ( so just reversing)
What is the formula for NWC?
Operating cash + inventory + accounts receivable - accounts payable.
Net Working Capital is an essential indicator of a company’s ability to meet its short-term obligations and fund day-to-day operations
What is the formula for the sustainable growth rate?
The first bit is just RNOA + FLEV X SPREAD
( 1-P) = percentage of earnings that are reinvested in the company to fuel its growth.
