Comprehensive exam Feb.11

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Objectives of the examination

z

Apply the financial management concept to

evaluate the company’s performance.

z

Relate the results of the analysis to make financial

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Guidance to comprehensive exam

z

THREE questions, passing score 55%

Calculation part: (50 points)

z Value-based performance analysis (Free Cash Flow to

Firm, Return on Invested Capital, Weighted Average Cost of Capital)

z Other information such as financial ratios are provided. z Analysis part: (50 points)

z Analysis of the company based on your calculation &

available information.

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Calculation parts

z

Free Cash Flow

z

Return on Invested Capital

z

Weighted Average Cost of Capital

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Free cash flow

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Free cash flow

z Free cash flow to firm (FCFF) is cash flow from operations after investments in working capital and capital expenditure

z It represents the amount of cash available to debt and equity

holders of the company.

z It is used to assess the ability of the firm to meet its interest and principal repayment

z Free cash flow to equity (FCFE) is free cash flow to firm after interest and principal payment. z It represents the amount of cash

available for equity holders. z It is used to assess the firms’

financial ability to sustain its

dividend policy and to identify

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Calculating free cash flow to firm

Using income statement

EBIT x (1- Tax rate)

+ Depreciation/ Amortisation (Other non cash charges) - Change in working capital - Change in fixed capital

= Free Cash Flow to Firm

Using cash flow statement

Cash flow from operations +/- Cash flow from investing

activities

+ After tax interest

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Practice exercise

2004 2005 2006 2007

Cash 259,061 141,287 132,794 67,861

Trade account receivables 334,696 284,164 571,070 749,415 Inventory 669,171 850,080 1,272,746 1,258,817

Other current assets 58,793 36,492 107,240 46,509 Trade account payables 109,114 113,723 160,210 223,571 Other current liabilities 76,081 92,834 150,394 156,547 Property, plant and equipment 827,805 1,237,691 2,256,911 2,406,649

EBIT 255,510 163,672 207,059 -273,280

Depreciation and amortisation 61,219 73,689 121,121 372,256

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Calculating free cash flow for 2005

z

Step 1

: Calculate change in working capital requires

you to calculate working capital for 2004 and 2005

Working capital

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Other operating CA & CL

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Working capital 2004 and 2005

2004 2005

Cash 259,061 141,287

Trade account receivables 334,696 284,164

Inventory 669,171 850,080

Other current assets 58,793 36,492 Trade account payables 109,114 113,723

Other current liabilities 76,081 92,834

Working capital 1,136,526 1,105,466

Change in working capital -31,060

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Free cash flow

z Step 2: Calculate change in fixed capital 2005

= Property, Plant and Equipment 05 – Property, Plant and Equipment 04 = 1,237,691 -827,805 = 409,886

z Step 3: Calculate Free cash flow to firm 2005 = EBIT * (1-.30) = 163,672 * .70 = 114,570 + Depreciation & Amortization = + 73,689 - Change in working capital = - (-31,060) - Change in fixed capital = - 409,886

= -190,567

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Solution to 2006 & 2007

144,941 121,121 667,780 1,019,220 1,420,938 - -133,397 372,256 -30,762 149,738 119,883 2006 2007 EBIT * (1-.30)

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Exercise

z Calculate WACC for

Bumrungrad international

1 month T-Bill 3.7%

3 year govt. bond 4%

23 year govt. bond 5.2%

SET return 14%

Cov (Bh, m) 22.87

Var (market) 35.24

Share price 35.5

No. of share outstanding (unit in 000)

728,269

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Value-based performance analysis

Calculate ROIC, and Economic Profit for BH for the

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Value-based performance analysis

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Solution: ROIC

- Definition: NOPAT / Invested Capital _bop

- NOPAT = EBIT x (1 – Tax rate) - NOPAT = 2,159,147 x (1-0.3) - NOPAT = 1,511,403

- Invested capital = Interest bearing debt ₂₀₀₆+ Shareholders’ equity ₂₀₀₆

- Interest bearing debt₂₀₀₆

= Current portion of long-term borrowings from financial institutions (328,522) + Long-term liabilities-net of current portion (1,422,449)

= 1,750,971

- Shareholders’ equity₂₀₀₆= 3,628,547

- Invested capital₂₀₀₆ = 1,750,971 + 3,628,547

=

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Solution: ROIC - Breakdown

- Definition: NOPAT / Invested Capital _bop= NOPAT x Sales

Sales Invested capital₀₆

- NOPAT margin = 1,511,403 = 16.06%

9,413,123

- Capital turnover = 9,413,123 = 1.74 times

5,379,518

- Check : 16.06% x 1.74 = 28%

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Solution: WACC

z Cost of debt = 7%

z After tax cost of debt = rd x (1 – Tax) = 7% x (1-.3) = 4.9%

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Solution: WACC

z Total capital = Book value of Debt + Market value of equity z Book value of debt = 1,335,301 Long-term liabilities-net of

current portion