Illustrative example Before the end of 2014, the president of JSC Foods Corp had instructed the Vice President for Finance to prepare the 2015 projected financial statement based on their most recent planning workshop. Based on the results of the planning workshop, the following assumptions were prepared for the 2015 projected financial statements.a Sales are expected to increase by 10% in 2015 from the 2014 sales level. This growth assumption is based on the assessment of the external and internal factors related to JSC Foods Corp and the historical growth of the company. The company’s sales grew by 10.4% annually from 2010 to 2014. The following financial statement accounts are expected to vary with sales based on the 2014 financial statements. b.1 Cost of Sales b.2 Cash b.3 Trade accounts receivable b.4 Inventories b.5 Other current assets b.6 Trade accounts payable Variable operating expense is 7.5% of sales. Depreciation expense is 10% of the gross beginning balance of property, plant and equipment. As of December 31, 2014, the gross balance of PPE is Php 26,000,000. For January 2015, Php 5,000,000 new PPE will be acquired. It is the policy of the company that PPE acquired in the first half of the year will be depreciated one full year. As of December 31, 2014, there are two long-term loans. Both have annual interest rates of 8%. c.1 the first loan will mature on June 30, 2015 and the remaining principal balance to be paid on June 30, 2015 is Php 1, 250, 000. c.2 The second loan amounting to Php 3,000,000 which was incurred on December 31, 2014 is paid at the rate of Php 500,000 principal balance every June 30 and December 31. New loans of Php 3 500 000 will be incurred on December 31, 2015 payable at the rate of Php 500,000 every June 30 and December 31. Annual interest rate is expected at 8%. Other noncurrent assets and other current liabilities will remain unchanged. Income tax rate is 30% of the income before taxes. Seventy-five of the income tax expense will be paid in 2015 while the balance will be paid in 2016. Cash dividends of Php 2,000,000 will be paid for 2015. JSC FOODS CORPORATION PROJECTED STATEMENT OF PROFIT AND LOSS For the Year ending December 31, 2014 Net Sales 52, 501, 085.00 Cost of Sales 41, 954, 730.00 Gross Profit 10, 546, 355.00 Operating Expenses 6, 497, 659.00 Operating Income 4, 048, 696.00 Interest Income 250,000.00 Income before Taxes 3, 798, 696.00 Taxes Net Income 1, 139, 609.00 Net Income 2, 659, 087.00 JSC FOODS CORPORATION PROJECTED STATEMENT OF PROFIT OR LOSS For the Year ending December 31, 2015 Net Sales Cost of Sales Gross Profit 11, 602, 215 Operating Expenses Operating Income Interest Expense Income before Taxes Taxes Net Income Compute for the Projected Statement of Profit or Loss based from the information: Cost of sales Cost of sales percentage in 2014 = (cost of sales ÷ net sales) x 100 Cost of sales percentage in 2014 Projected cost of sales in 2015 = projected of cost of sales in 2014 x projected 2015 net sales Projected cost of sales in 2015 = Operating expenses Variable = 7.5% of sales Depreciation expense Total Operating Expense= Long-term loans @ 8% interest rate First loan = Second loan = Tax @ 30%
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
Illustrative example
Before the end of 2014, the president of JSC Foods Corp had instructed the Vice President for Finance to prepare the 2015 projected financial statement based on their most recent planning workshop. Based on the results of the planning workshop, the following assumptions were prepared for the 2015 projected financial statements.a
- Sales are expected to increase by 10% in 2015 from the 2014 sales level. This growth assumption is based on the assessment of the external and internal factors related to JSC Foods Corp and the historical growth of the company. The company’s sales grew by 10.4% annually from 2010 to 2014.
- The following financial statement accounts are expected to vary with sales based on the 2014 financial statements.
b.1 Cost of Sales
b.2 Cash
b.3 Trade accounts receivable
b.4 Inventories
b.5 Other current assets
b.6 Trade accounts payable
Variable operating expense is 7.5% of sales. Depreciation expense is 10% of the gross beginning balance of property, plant and equipment. As of December 31, 2014, the gross balance of PPE is Php 26,000,000. For January 2015, Php 5,000,000 new PPE will be acquired. It is the policy of the company that PPE acquired in the first half of the year will be depreciated one full year.
- As of December 31, 2014, there are two long-term loans. Both have annual interest rates of 8%.
c.1 the first loan will mature on June 30, 2015 and the remaining principal balance to be paid on June 30, 2015 is Php 1, 250, 000.
c.2 The second loan amounting to Php 3,000,000 which was incurred on December 31, 2014 is paid at the rate of Php 500,000 principal balance every June 30 and December 31. New loans of Php 3 500 000 will be incurred on December 31, 2015 payable at the rate of Php 500,000 every June 30 and December 31. Annual interest rate is expected at 8%.
- Other noncurrent assets and other current liabilities will remain unchanged.
- Income tax rate is 30% of the income before taxes. Seventy-five of the income tax expense will be paid in 2015 while the balance will be paid in 2016.
- Cash dividends of Php 2,000,000 will be paid for 2015.
| JSC FOODS CORPORATION | |||
| PROJECTED STATEMENT OF |
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| For the Year ending December 31, 2014 | |||
| Net Sales | 52, 501, 085.00 | ||
| Cost of Sales | 41, 954, 730.00 | ||
| Gross Profit | 10, 546, 355.00 | ||
|
Operating Expenses
|
6, 497, 659.00 | ||
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Operating Income
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4, 048, 696.00 | ||
|
Interest Income
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250,000.00 | ||
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Income before Taxes
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3, 798, 696.00 | ||
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Taxes Net Income
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1, 139, 609.00 | ||
| Net Income | 2, 659, 087.00 |
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JSC FOODS CORPORATION |
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PROJECTED STATEMENT OF PROFIT OR LOSS |
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For the Year ending December 31, 2015 |
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Net Sales |
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Cost of Sales |
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Gross Profit |
11, 602, 215 |
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Operating Expenses |
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Operating Income |
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Interest Expense |
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Income before Taxes |
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Taxes Net Income |
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Compute for the Projected Statement of Profit or Loss based from the information:
Cost of sales
- Cost of sales percentage in 2014 = (cost of sales ÷ net sales) x 100
- Cost of sales percentage in 2014
- Projected cost of sales in 2015 = projected of cost of sales in 2014 x projected 2015 net sales
- Projected cost of sales in 2015 =
Operating expenses
- Variable = 7.5% of sales
- Depreciation expense
Total Operating Expense=
Long-term loans @ 8% interest rate
- First loan =
- Second loan =
Tax @ 30%
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