How to balance three financial statements - CFI & CFF section Michael Kors - Help needed!
So basically I have a final project on financial modeling and the task is to project and balance Michael Kors' three financial statements into the future 5 years. I am confused about: 1. How to project the CF from Investing and Financing section on CFS? 2. Once projection is finished, how to link them back to my balance sheet? I don't know which links to which. 3. On its CFS, the CFO section has a lot of non cash charges that it adjusts, I don't know how to necessarily link them or tie them back to IS? Or do I have to tie them back??
Basically I could use really simple assumptions and my prof doesn't want us to get complicated here, he just wants us to balance it!
I am really confused, pls help!
Not to be overly inflammatory here, but these are pretty simple questions. Have you taken a financial modeling course, and, more importantly, have you taken intro to financial accounting? It should be fairly clear how the three statements tie together if you have the prerequisite accounting knowledge.
I know the basics, but when they have a lot of items tied together then I got confused.
There is almost too much to go through.
1. How to project the CF from Investing and Financing section on CFS? CFI projection is generally limited to capex. You would project capex on the CFS (% of sales for simplicity) and link it to the PP&E account on the bs. CFI is going to be debt issuance/repayment (linked to balance sheet and/or debt schedule), share repurchases (linked to equity account on bs) and dividends (linked to equity account).
2. Once projection is finished, how to link them back to my balance sheet? I don't know which links to which. Hopefully the above gives you enough of a general direction to get started
3. On its CFS, the CFO section has a lot of non cash charges that it adjusts, I don't know how to necessarily link them or tie them back to IS? Or do I have to tie them back?? Depends on how the model works. Maybe you forecast D&A in the income statement and link it to the CFS, or maybe you forecast D&A in the CFS and link it to the income statement. You need to understand how the non-cash charges flow through the statements and how the model functions.
Thanks and I understand that capex part and have projected that.
The part I don't understand is how u deal with all those non cash charges on CFS that never appeared on IS?
For instance, on CFS for Kors, it has those items under CFO: Depreciation and Amortization Impairment and write-off of property and equipment Equity Compensation Expense Deferred income taxes Non-cash litigation related costs Amortization of deferred rent Loss on disposal of fixed assets Amortization of deferred financing costs Tax benefits on exercise of share options Foreign currency (gain) losses Gain on acquisition of MK Korea Loss(income) earned on joint venture
And out of all those, only two items which are D&A and Impairment appeared on IS, so I projected those two on IS and linked them to CFS, but what about the rest?
How do I project them? Make them simple percentages of Revenue? And after projection, do I need to tie them back to BS? I do right? But I don't know which items tie back to which on BS.
I am really confused, pls help!!
Why do you want to project forward one time charges? Project forward only what definitively is shown to be recurring or ongoing.
Look through their reports and find out the timeline attached to these items.
For example; the tax benefits on the exercise of share options, write-offs of property and equipment, or the loss on disposal of fixed assets shouldn't be projected forward unless they are ongoing.
Thanks!
Yes I understand that, the thing is most of those items are recurring (they have numbers going back to the last 3-4 years so I considered them recurring, am I right here? ). Only one is not recurring (zeros going back for 2 years).
So my question is: 1. How do I deal with the projection for those non cash items that have historical numbers for the last 3 yrs? 2. If they have zeros for historical numbers, going forward I also make them zeros right? Since they are not recurring.
I don't know too much about financial modeling and I am trying to learn now, can you teach me a bit?
Many thanks!!!!
This is why you need to read the footnotes.
If there are historical numbers for something that is not part of their regular business activities you need to address that by reading their annual report.
So basically look through their notes? I just did that for one item, it says that it has ongoing plans but it did not specify!
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