finance/accounting/dcf questions would appreciate help from someone that understands DCF analysis
Hello everybody I had a few general questions and I would appreciate it if you guys could help me out. I thought I would put this post in the banking section since you guys do this all day. A little background. I am trying to do a DCF analysis to value a company and have the projected income statement for 3 years with the following Sales, COGS, Gross Margin, net profit, EBT, EBITDA, Cap ex
1) When calculating free cash flows, can I substitute EBIT(1-t) with EBT(1-t)? I can't find an interest expense on the projected IS, so does that mean I can just use EBT? EBIT isn't projected, either is D&A, and I can't get it without D&A since GM-OPEX-D&A=EBIT. What should I do? Anyway to get EBIT from EBITDA without knowing D&A?
2)I thought Net profit=net earnings=income ,but instead of rev-expenses, they put COGS-Expenses = NI. I really don't get that anybody know why?
3)I don't have a projected d&A expense, and the historical IS shows a different Dep than the hist BS(big differance). I really dont understand why, any ideas? Even why I try to mess around and put either D&A (by straight line method) onto the projected FCF I am way off when I get to EBITDA
4)I know a P/L statement is similar to Income Statement, but why doesn't it have Sales? Anyway to get Sales from it? Why do some firms use P&L?
5)Is it possible to project the EBIT and D&A with the above information I have?
6)Also, kind of off topic but where would I find a similar company so I can use the multiple method too. Could not find one on YahooFin cause it is one of a kind, but I am sure that there must some kind of database of companies out there. What do you guys use?
Thank you in advance for your help as I really appreciate it.
I'll give you my answers in a 30 second, non-thoughtful post.
1- No, interestest is a part of your cashflows. Do they have debt? Maybe there is somehow no interest.
2 - Doesn't make much sense. I was going to say it may be a cost center (processes goods or does something else for the company that provides a service, but no revenues) but they have COGS. To have COGS you have to have sales. Are earnings positive? If so, you can work backwards to get revenues.
3 - Do the fixed asset amounts change? D&A can get tricky when they're buying and selling assets. Also, if you're working with a small company it's possible that the income statement is tax basis (different depreciation than GAAP). These are really a stretch. Is the BS depreciation higher? IF so, you probably have Depr in your COGS or somewhere else that you don't see right now.
4 - P/L typically does have sales. Not really sure what yours looks like, but in order to have a profit (the "P") you need revenues.
5 - I'm not exactly sure what you're looking at, but probably. I'd estimate D&A off of the balance sheet information (that may not be correct, but its what I'd do).
6 - Capital IQ is probably your best bet, followed by Onesource, Yahoo, and industry groups. Unfortunately you need subscriptions to the first 2.
Now sure this is 100% correct, but I took a stab at giving you a hand.
Check out the Statemet of CF champ. D&A is added back to NI to get CFO. Or, you can check the "Property and Equipment" note in the 10-k.
Do they have any debt? If not, then they won't have any interest. But for analysis purpose, consider this. If there is little to no D&A or Interest for what would seem to be a capital intensive company, then their might be some significant operating leases, and you may want to capitalize those which would in fact give you an interest number. Look for the "Leases" section in the notes, it will have all the info you need.
D&A will most likely not change going forward unless there is a severe disconnect between CAPEX and the sale of assets. Back to Statement of CF, what does the CFI look like? In the MD&A, look at projected CAPEX.
Does this help?
It doesn't have debt. So does it mean I can use EBT for EBIT? This is because there is no interest expense at all. I just feel a little uncomfortable doing this because I know that EBIT=GM-OPEX-COGS and in the EBT calculation all of the expenses are incorporated into the calculation including CapExp and I know CapExp should not be in OPEX. Should I just take out OPEX from EBT and consider it correct.Any thoughts?
YES IT DOES HELP! Thanks guys I will be able to look at it more tonight when I get the rest of the financials. I guess I can assume that D&A is in the expenses somewhere, but I was told that it is really insignificant because it is a service company. I am really confused especially with how Net Income or profit was calculated. How common is it for the owner's projections to be wrong?
Also, Since it has no debt I should use APV to get the discount rate intead of wacc right?
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