3 statement model & valuation - cash flows & valuation increase when revenue growth decreases??
Doing a 3 statement model with DCF attached. When revenue growth is 0, or even -40 or -70% as opposed to 5% or 20% etc - cash flows actually increase? when the business has high revenue growth the cash flows actually go negative! I presume this is due to how I have driven it, any fixes? this seems odd? Or is it ok?
The increase seems to be due to changes in NWC & capex / D&A.
Revenue is driven off pure growth as %. COGS backed into from gross profit margin. SG&A from SG&A margin. NWC is either driven as % sales, or broken out & done as DSO, DPO & Inventory turnover. Capex is % revenue, D&A is % Fixed assets FY-1.
Help please!
5Y cash flows at 5% revenue growth - 1509, 1300, 1023, 770, 543. 5Y cash flows at -5% revenue growth - 2547, 2516, 2392, 2270, 2157.
Cheers all!
If you want a closer look:
https://drive.google.com/open?id=1mY0WwERJKpeoa_BQfmBHUoYP4RhPl_Bf
are expenses a multiple of revenue vs a % of ?
Expenses as in COGS? Revenue increases by % - Then I calculate Gross profit from gross profit margin of 38.5%. COGS is backed into from that.
SG&A is then calculated as a % of revenue.
So I mean you probably just fucked up but conceptually, higher revenue growth would in fact reduce value in the situation where WACC > ROIC.
Ah I see that must be it! ROIC is seriously low at around 1.2% but WACC is 9.1%. Thanks :)
Your madel is #ref'd out when I open it in the Google drive, but do you break out mainenance vs. growth Capex? I.E. will you assume 0 spend for growth capex in years of negative sales growth but $XXX for stronger years? That is a common practice which diminishes FCF in growth years.
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