Folks,
I was seeting up a DCF for practise. I had to calculate the Tax rate from the historic perfomances... so I took taxable income/ net income and noted.. tax perecentage was 57% and went up to 82% and clearly im doing something wrong... please comment..
When analysts mak e assumptions... in order to project in the future. for FCF:
I know in school they teach us the following(fairly simple)
Sales Growth 10%
Current Assets/ Sales 15%
Current liabilities/ Sales 8%
Net Fixed Assets/Sales 77%
COGS/Sales 50%
Depreciation Rate 10%
interest on Debt 10%
Interest on Cash balances 8%
Tax Rate 40%
Dividend Payout 40%
but in the real world.. I am sure these assumption are more much more complex and custoomized for every industry.. that is retail.. manufacturing...
My questions is how can I make my assumption more realistic.. and may be see an example..
Thanks in advance..
I would say that 10% sales growth is a bit high. I would try to stay in the 5%-7% range for the first few years, and drop to 3%-4% for the terminal value. Really, it all depends on what kind of company you are valuing. If you are valuing a start-up company, 10+% would be much more believable. If it is a utility, or perhaps even mfg., then I wouldn't stray far from the 3%-4% range. Obviously, the most realistic way of doing it would be to take business cycles into consideration and adjust revenue growth every year depending on how the specific company fits into that cycle.
Hope this helps.
Thanks for the info Fraser24gt,
So usually this growth rate and assumptions are decided by Senior Bankers.. or the analyst..?
Is there a guidance.. or site where I can see growth rate for Manufacuring industry.. and may be base my assumptions accordingly.. thanks for ur info again.
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