bav model v4.7
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Courseware: #103-701
Contents
Overview and InstructionsImported Financial StatementsStandardized Financial StatementsAccounting AdjustmentsRatio AnalysisPerformance ChartsAssumptionsPro Formas and Valuation
Overview
The purpose of the Business Analysis and Valuation Model (BAV Model) is to aid users in analyzing and valuing any company with at least two years of historical financial
Paul Healy, and Victor Bernard (Cincinnatti, OH: South-Western College Publishing, 2004).
Download a PDF version of Instructions with screenshots:
Technical Note
This workbook makes extensive use of macros. For these macros to be operational, yoursecurity level must be set to 'medium', and you must select the 'enable macros' button whenthe workbook is first opened. To check/adjust your security level, select Tools| Macro|Security| Medium (level). If your security level is set to 'high', the workbook will not operatecorrectly.
To open multiple copies of the model at the same time, each copy should be opened in a newinstance of Microsoft Excel (i.e. start Excel from the Start menu, then use File|Open… to openthe model). Excel allocates a fixed amount of memory for each launch, and multiple copiesof the model can easily require more memory than allocated by a single Excel instance,resulting in 'Out of System Resources' errors.
The Business Analysis and Valuation Model was developed by Professor Paul Healy andProfessor Krishna Palepu with the assistance of Research Associate Jonathan Barnett.Development assistance was provided by Village Software, Inc.See BAV Navigator menu --> About BAV Model for software version number.
Please do not use without the authors' permission.
Copyright © 2002-2008 President and Fellows of Harvard College
statement data. This program may be used in conjunction with the Business Analysis& Valuation Using Financial Statements text, written by Professors Krishna Palepu,
Instructions links within this model require the Internet Explorer browser.
http://www.hbs.edu/it/pdf/bav_help.pdf
Imported Income Statement
Page 2 of 185
Company NameOrdering of Years on Financial StatementsLatest Income Statement YearEarliest Income Statement YearFiscal Year-End (Month, Day)Units
Step 2: Select Valuation Type
Classifications Year Ended , ()
PASTE IMPORTED FINANCIAL STATEMENT DATA HERE
Initial Setup
Step 1:
If you have a Compustat WRDS account
If you do not have a Compustat account, fill in the yellow cells and proceed to Step 2.
Change Sign?
PASTE FINANCIAL STATEMENT LABELS IN THIS COLUMN
Download Company Financials from Compustat WRDS
Imported Income Statement
Page 3 of 185
Classifications Year Ended , () Change Sign?
Imported Income Statement
Page 4 of 185
Classifications Year Ended , () Change Sign?
Imported Balance Sheet
Page 5 of 185
Classifications #N/A 0 -1
PASTE IMPORTED FINANCIAL STATEMENT DATA HERE *
*Please import the BEGINNING balance sheet values for the years shown above.
The beginning balance sheet values for a given year are equivalent to the prior year's ENDING balance sheet values.
Change Sign?
PASTE FINANCIAL STATEMENT LABELS IN THIS COLUMN
Imported Balance Sheet
Page 6 of 185
Classifications #N/A 0 -1
Change Sign?
Imported Balance Sheet
Page 7 of 185
Classifications #N/A 0 -1
Change Sign?
Imported Statement of Cash Flows
Page 8 of 185
Classifications Year Ended , ()
PASTE IMPORTED FINANCIAL STATEMENT DATA HERE
Change Sign?
PASTE FINANCIAL STATEMENT LABELS IN THIS COLUMN
Imported Statement of Cash Flows
Page 9 of 185
Classifications Year Ended , () Change Sign?
Imported Statement of Cash Flows
Page 10 of 185
Classifications Year Ended , () Change Sign?
Classification Lookup
Page 11 of 185
Please select Classification category here
Directions:1. Select the financial statement (Income Statement, Balance Sheet, or Statement of Cash Flows) from the white drop-down menu below.
2. Select the desired line-item classification heading(s) from the yellow shaded drop-down menu for examples of financial statement line-items typically classified under that heading.
Classification Lookup
Page 12 of 185
Please select Classification category here
Standardized Financial Statements
Page 13 of 185
As Reported###
AssetsCash and Marketable SecuritiesAccounts ReceivableInventoryOther Current AssetsTotal Current Assets
Long-Term Tangible AssetsLong-Term Intangible AssetsOther Long-Term AssetsTotal Long-Term AssetsTotal Assets
LiabilitiesAccounts PayableShort-Term DebtOther Current LiabilitiesTotal Current Liabilities
Long-Term DebtDeferred Taxes
Total Long-Term LiabilitiesTotal Liabilities
Minority Interest
Shareholders' EquityPreferred StockCommon Shareholders' EquityTotal Shareholders' Equity
Beginning Balance Sheet
Other Long-Term Liabilities (non-interest bearing)
Total Liabilities and Shareholders' Equity
Common Shares Outstanding at Fiscal Year End
Standardized Financial Statements
Page 14 of 185
As ReportedYear Ended , ()Income Statement
SalesCost of SalesGross ProfitSG&A
Other Operating ExpenseOperating IncomeInvestment IncomeOther Income, net of Other Expense
Other IncomeOther Expense
Net Interest Expense (Income)Interest IncomeInterest Expense
Minority InterestPre-Tax IncomeTax Expense
Net IncomePreferred DividendsNet Income to Common
Unusual Gains, Net of Unusual Losses (after tax)
Common Shares for Primary EPS Calculation
Standardized Financial Statements
Page 15 of 185
As ReportedYear Ended , ()
Statement of Cash Flows
Net Income
Non-operating losses (gains)Long-term operating accruals Depreciation and amortization Other
Net debt (repayment) or issuance
Dividend (payments)
After-tax net interest expense (income)
Operating cash flow before working capital investments
Net (investments in) or liquidation of operating working capital
Operating cash flow before investment in long-term assets
Net (investment in) or liquidation of operating long-term assets
Free cash flow available to debt and equity
After-tax net interest expense (income)
Free cash flow available to equity
Net stock (repurchase), issuance, or other equity changes
Net increase (decrease) in cash balance
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BAV Identities
Page 167 of 185
#N/A
I. Net Working CapitalAccounts Receivable
+ Inventory+ Other Current Assets- Accounts Payable- Other Current Liabilities= Beginning Net Working Capital
II. Net Long-Term Assets
Long-term Tangible Assets+ Long-term Intangible Assets+ Other Long-Term Assets- Minority Interest- Deferred Taxes
-
= Beginning Net Long-Term Assets
III. Total AssetsBeginning Net Working Capital
+ Beginning Net Long-Term Assets= Beginning Net Assets
IV. Total Net Capital
Short-term Debt+ Long-term Debt- Cash= Beginning Net Debt
+ Beginning Preferred Stock+ Beginning Common Shareholders' Equity= Beginning Total Net Capital
Beginning Balance Sheet & Identities
Other Long-Term Liabilities (non-interest bearing)
BAV Identities
Page 168 of 185
Income Statement & Identities
Year Ended , ()
SalesNet Operating Profit after Tax (NOPAT):
- Net Interest Expense after Tax= Net Income- Preferred Dividends= Net Income to Common
I. Net Interest Expense after Tax
Interest Expense- Interest Income= Net Interest Expense (Income)x (1- Tax/Pre-Tax Income)= Net Interest Expense after Tax
II. Net Operating Profit after Tax (NOPAT)
Net Income+ Net Interest Expense after Tax= Net Operating Profit after Tax- Unusual Gains, Net of Unusual Losses (after tax)
= Net Operating Profitexcluding Unusual Gains,Net of Unusual Losses (after tax)
Condensed Financial Statements
Page 169 of 185
#N/A
Beginning Net Working Capital + Beginning Net Long-Term Assets = Total Assets
Beginning Net Debt+ Beginning Preferred Stock+ Beginning Shareholders' Equity
= Total Net Capital
Beginning Balance Sheet
Condensed Financial Statements
Page 170 of 185
Year Ended , () 0 1
Income Statement
SalesNet Operating Profit after Tax
- Net Interest Expense after Tax= Net Income- Preferred Stock Dividends= Net Income to Common
Operating ROAROEBV of Assets Growth RateBV of Equity Growth RateNet Operating Asset Turnover ratio
Ratio Analysis
Page 171 of 185
Please choose calculation method:
DECOMPOSING PROFITABILITY: DUPONT ALTERNATIVE
NOPAT / Salesx Sales / Net Assets= Operating ROA
Spreadx Net Financial Leverage= Financial Leverage Gain
ROE (Operating ROA + Spread * Net Financial Leverage)
EVALUATING OPERATING MANAGEMENT
Key Growth Rates:
Annual Sales Growth NA*Annual Net Income Growth NA
Key Profitability Ratios:
Sales / SalesCost of Sales / SalesGross MarginSG&A / SalesOther Operating Expense / SalesInvestment Income / SalesOther Income, net of Other Expense / SalesMinority Interest / SalesEBIT MarginNet Interest Expense (Income) / SalesPre-Tax Income MarginTaxes / SalesUnusual Gains, Net of Unusual Losses (after tax) / SalesNet Income Margin
EBITDA MarginNOPAT Margin
Recurring NOPAT Margin
Ratio Analysis
Page 172 of 185
Please choose calculation method:
EVALUATING INVESTMENT MANAGEMENT
Working Capital Management:
Operating Working Capital / SalesOperating Working Capital TurnoverAccounts Receivable TurnoverInventory TurnoverAccounts Payable TurnoverDays' ReceivablesDays' InventoryDays' Payables
Long-Term Asset Management:
Net Long-Term Assets TurnoverNet Long-Term Assets / SalesPP&E TurnoverDepreciation & Amortization / Sales
Ratio Analysis
Page 173 of 185
Please choose calculation method:
EVALUATING FINANCIAL MANAGEMENT
Short-Term Liquidity:
Current RatioQuick RatioCash RatioOperating Cash Flow Ratio
Debt and Long-Term Solvency:
Liabilities-to-EquityDebt-to-EquityNet-Debt-to-EquityDebt-to-CapitalNet-Debt-to-Net Capital
Interest Coverage Ratio:
Interest Coverage
Payout Ratio:
Dividend Payout Ratio
Sustainable Growth Rate:
* NA - not available, n/a - not applicable
Key Assumptions
Page 174 of 185
Note: All yellow-shaded cells require input (including those preset to zero). If the appropriate
value for a blank input cell is zero, enter 0. Inputs are optional for gray-shaded cells.
Historical Ratios Forecast Horizon Terminal Years
Year Ended , () 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
Assumptions for years 1-15: Note: Only the most recent historical years reflect accounting adjustments that have been made.
Sales growth rate 0.0% 0.0%Net operating profits after tax / sales 0.0% 0.0%Beginning net operating working capital / sales 0.0% 0.0%Beginning net operating long-term assets / sales 0.0% 0.0%
Assumptions for year 16 and beyond:
Sales growth rateNet operating profit after tax / salesBeginning net operating working capital / sales Beginning net operating long-term assets / sales
Net debt / book value of net capital Preferred equity / book value of net capital Shareholders' equity / book value of net capital
0.0%
Net debt / market value of net capital Preferred equity / market value of net capital Shareholders' equity / market value of net capital
0.0%
Cost of Capital parameters:
Market risk premiumRisk free rateTax rateCost of debtCost of preferred equity (if applicable)Implied debt betaImplied preferred equity betaCommon equity betaImplied asset beta
After tax cost of debt 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%Cost of common equity 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Number of Common shares outstanding
Book Value Leverage (beginning of year)
Market Value Leverage (beginning of year)
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Performance Charts
Page 176 of 185
HISTORIC and FORECAST CHARTS for
Sales Growth 10-Year Historic Sales Growth for Comparable U.S. Firms
An
nu
al S
ales
Gro
wth
An
nu
al S
ales
Gro
wth
View Company's Historic PerformanceView Company's Pro Forma PerformanceView Historic Performance of US Companies
Year Year
Net Operating Profit after Tax (NOPAT) Margin 10-Year Historic NOPAT Margin for Comparable U.S. Firms
Net
Op
erat
ing
Pro
fit
afte
r T
ax/ S
ales
Year Year
Historic Net Operating Asset Turnover 10-Year Historic Net Operating Asset Turnover for Comparable U.S. Firms
Sal
es /
Net
Op
erat
ing
Ass
ets
Sal
es /
Net
Op
erat
ing
Ass
ets
Year Year
Operating Return-on-Assets (ROA) 10-Year Historic Operating ROA for Comparable U.S. Firms
Year Year
Return-on-Equity (ROE) 10-Year Historic ROE for Comparable U.S. Firms
Year Year
(1) Herein, comparable firms are defined as all publicly traded U.S. firms between the years 1984 and 2001, whose measure of interest (e.g., sales growth, NOPAT margin, ROE, etc.) resides within the same quintile as (for which the measure was taken in the latest income statement year).
10-Year Historic Performance of Comparable U.S. Firms(1)
Net
Op
erat
ing
Pro
fit
afte
r T
ax /
S
ales
Net
Op
erat
ing
Pro
fit
afte
r T
ax /
Net
Ass
ets
Ne
t O
pe
rati
ng
Pro
fit
afte
r T
ax
/ N
et
As
se
ts
Net
In
com
e /
Beg
inn
ing
S
har
eho
lder
s' E
qu
ity
Net
In
com
e /
Beg
inn
ing
S
har
eho
lder
s' E
qu
ity
0 1 2 3 4 5 6 7 8 9-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
0 1 2 3 4 5 6 7 8 9-35%
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
0 1 2 3 4 5 6 7 8 90.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
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6.5
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0 1 2 3 4 5 6 7 8 9-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
0 1 2 3 4 5 6 7 8 9-60%
-50%
-40%
-30%
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-10%
0%
10%
20%
30%
40%
1 2 3 4 5 6 7 8 9 10-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
1 2 3 4 5 6 7 8 9 10-35%-30%-25%-20%-15%-10%-5%0%5%
10%15%20%25%
1 2 3 4 5 6 7 8 9 100.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
1 2 3 4 5 6 7 8 9 10-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
1 2 3 4 5 6 7 8 9 10-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
Overview and Instructions
Return to BAV Dashboard
Pro Formas & Valuation
Page 177 of 185
PRO FORMA FINANCIAL STATEMENTS
Historical Forecast Horizon Terminal Years
Year Ended , () -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
Beg. Net Working Capital 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0+ Beg. Net Long-Term Assets 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0= Net Operating Assets 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Net Debt
+ Preferred Stock + Shareholders' Equity = Net Capital
Income Statement Sales 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Net operating profits after tax 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0- Net interest expense after tax = Net income - Preferred dividends 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0= Net income to common
Operating Return on Assets 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Return on Common Equity Book Value of Assets Growth Rate 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Book Value of Common Equity Growth Rate Net Operating Asset Turnover 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Free Cash Flow to Equity
Discount Factor - Common Equity 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00Book Value of Equity Growth Factor (cumulative) 1.00Cost of Common Equity 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Beginning Balance Sheet
Overview and Instructions
Return to BAV Dashboard
Pro Formas & Valuation
Page 178 of 185
Forecast Horizon Terminal Years
Year Ended , () 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
DCF Valuation of the Equity
Net Income to Common- Investment in Net Working Capital 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0- Investment in Net Long-Term Assets 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0+ Increase in debt obligations+ Increase in preferred equity= Free Cash Flow to Equity* Discount factor - Common Equity (CAPM) 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00= Present value of Free Cash Flow to Equity
PV of FCF to Equity (years 1-15) 0+PV of FCF to Equity beyond Year 15= Value of the Equity 0.0
Number of shares outstanding (MM)
Estimated value per share
Forecast Horizon Terminal Years
Year Ended , () 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
Abnormal Earnings Valuation of the Equity
Net Income to Common- Charge for Common Equity Capital = Residual Operating Income* Discount factor - Common Equity 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00= Present Value of Residual Operating Income
PV of Residual Operating Income (years 1-15) 0+ PV of Residual Operating Income beyond Year 15+ Beg. Book Value of Equity= Value of the Equity 0.0
Number of shares outstanding (MM)
Estimated value per share
Pro Formas & Valuation
Page 179 of 185
Forecast Horizon Terminal Years
Year Ended , () 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
Abnormal Returns Valuation of the Equity
Return on Common Equity- Cost of Common Equity 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%= Abnormal Returns* Discount Factor - Common Equity 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00* Book Value of Equity Growth Factor 1.00= Present Value of Abnormal Return on Common Equity
+ Beg. Book Value of Common Shareholders' Equity = Value of the Equity 0.0
Implied Market to Book Value Ratio
Number of shares outstanding (MM)
Estimated value per share
Beg. Book Value of Common Equity * PV of Abnormal ROE (years 1-15)
+ Beg. Book Value of Common Equity * PV of Abnormal ROE beyond year 15
Valuation Summary
Page 180 of 185
Reminders:
Table 1. Valuation Summary-
Valuation Summary:
() Equity Value Equity Value No reminders to report.
per shareDiscounted Cash Flows $0.0
Abnormal Earnings $0.0
Abnormal Returns $0.0
Table 2. Accounting Adjustments and Summary of Effects on 's Financial Statements:
Accounting Adjustments Effect on: As Reported Adjusted Difference()
Net Income to Common
Return on Common Equity (ROE)
NO ADJUSTMENTS RECORDED
Table 3. Key Assumptions (Note: Assumptions cannot be modified in this worksheet.
Beginning Book Value of Common Shareholders' Equity
Valuation Summary
Page 181 of 185
To further revise assumptions, please return to the Key Assumptions sheet.)
Historical Ratios Forecast Horizon Terminal Years
Year Ended , () 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
Assumptions for years 1-15:
Sales growth rate Net operating profits after tax / sales Beginning net operating working capital / sales Beginning net operating long-term assets / sales
Assumptions for year 16 and beyond:
Sales growth rateNet operating profit after tax / salesBeginning net operating working capital / sales Beginning net operating long-term assets / sales
Book Value Leverage (beginning of year)
Net debt / book value of net capital Preferred equity / book value of net capital Shareholders' equity / book value of net capital
0.0%
Market Value Leverage (beginning of year)
Net debt / market value of net capital Preferred equity / market value of net capital Shareholders' equity / market value of net capital
0.0%
Cost of Capital parameters:
Market risk premiumRisk free rateTax rateCost of debtCost of Preferred equity (if applicable)Implied Debt BetaImplied Preferred Equity BetaCommon Equity BetaImplied asset beta
After tax cost of debt 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%Cost of common equity 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Pro Forma ROE
Number of Common shares outstanding
Valuation Summary
Page 182 of 185
Table 4. Valuation Summary, all stored scenarios for :
() Equity Value Equity Value
per shareScenario 1
Discounted Cash Flows $0.0 $0.00Abnormal Earnings $0.0 $0.00Abnormal Returns $0.0 $0.00
Scenario 2
Discounted Cash Flows $0.0 $0.00Abnormal Earnings $0.0 $0.00Abnormal Returns $0.0 $0.00
Scenario 3
Discounted Cash Flows $0.0 $0.00Abnormal Earnings $0.0 $0.00Abnormal Returns $0.0 $0.00
Scenario 4
Discounted Cash Flows $0.0 $0.00Abnormal Earnings $0.0 $0.00Abnormal Returns $0.0 $0.00
Scenario 5
Discounted Cash Flows $0.0 $0.00Abnormal Earnings $0.0 $0.00Abnormal Returns $0.0 $0.00
1Scen02
Page 183
0C
00.69
688.99--------------------
1306.85220.34
0000
--------------------1527.19
--------------------
0322.14
0898.52
0--------------------
1220.66--------------------
2747.85Err:510
35796
1Scen02
Page 184
--------------------
--------------------
--------------------
--------------------
--------------------
1Scen03
Page 185
0C
0100.36650.34
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