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ความคิดเห็นที่ 69 |
In the previous chapter, we forecasted The Widget Company's revenues over the next five years. Here we show you how to project the other items in our calculation over that period.
Future Operating Costs
When doing business, a company incurs expenses - such as salaries, cost of goods sold (CoGS), selling and general administrative expenses (SGA), and research and development (R&D). These are the company's operating costs. If current operating costs are not explicitly stated on a company's income statement, you can calculate them by subtracting net operating profits - or earnings before interest and taxation (EBIT) - from total revenues.
A good place to start when forecasting operating costs is to look at the company's historic operating cost margins. Theoperating margin is operating costs expressed as a proportion of revenues.
For three years running, The Widget Company has generated an average operating cost margin of 70%. In other words, for every $1 of revenue, the company incurs $0.70 in operating costs. Management says that its cost cutting program will push those margins down to 60% of revenues over the next five years.
However, as analysts and investors, we should be concerned that competing widget factories might be built, thus squeezing The Widget Company's profitability. Therefore, as we did when forecasting revenues, we will err on the side of conservatism and assume that operating costs will show an increase as a percentage of revenues as the company is forced to lower its prices to stay competitive over time. Let's say operating costs will hold at 65% of revenues over the first three projected years, but will increase to 70% in Year 4 and Year 5 (see Figure 2).
Taxation
Many companies do not actually pay the official corporate tax rate on their operating profits. For instance, companies with high capital expenditures receive tax breaks. So, it makes sense to calculate the tax rate by taking the average annual income tax paid over the past few years divided by profits before income tax. This information is available on the company's historic income statements.
Let's assume that for each of the past three years, The Widget Company paid 30% income tax. We will project that the company will continue to pay that 30% tax rate over the next five years (see Figure 2).
Net Investment
To underpin growth, companies need to keep investing in capital items such as property, plants and equipment. You can calculate net investment by taking capital expenditure, disclosed in a company's statement of cash flows, and subtracting non-cash depreciation charges, found on the income statement.
Let's say The Widget Company spent $10 million last year on capital expenditures, with depreciation of $3 million, giving net investment of $7 million, or 7% of total revenues (see Figure 2). But in the two prior years, the company's net investment was much higher: 10% of revenues.
If competition does intensify in the widget industry, The Widget Company will almost certainly have to boost capital investment to stay ahead. So, we will assume that net investment will steadily return to its normal level of 10% of sales over the next five years, as seen in Figure 2: 7.6% of sales in Year 1, 8.2% in Year 2, 8.8% in Year 3, 9.4% in Year 4 and 10% in Year 5.
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DCF Analysis: The Forecast Period & Forecasting Revenue Growth
