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AMD Finance Case Study. Valuation and projections.

Finance Case Study. AMD. Valuation

The steps involved in projecting the balance sheet are similar to the steps followed in projecting the income statement. The difference in the two methods is that in the income statement, almost everything is expressed as a percentage of sales, while in the balance sheet items are projected in three different ways:

  1. Items are projected as a percentage of sales. Almost all current assets and liabilities will be classified under this category
  2. Items expressed as a percentage of assets. Amortization is generally expressed as a percentage of goodwill, while depreciation is projected as a percentage of gross fixed assets. Another example is allowances for bad debt; it is expressed as a percentage of receivables rather than sales.
  3. Items projected as a plug. Depending on which route is taken in the projection, Equity or Long-term Debt will be projected as a plug rather than as a percentage of sales.

Let’s go through the assumptions for current assets first.

Balance Sheet Assumptions

2000

2001

2002

2003

Cash

10%

10%

9%

9%

Securities

12%

12%

12%

12%

Receivable, Net

17%

16%

15%

14%

Inventory

7%

7%

7%

7%

Cash for the next four years (2000-2003) starts with 10% and then declines to 9% of sales in the terminal year.

Balance Sheet Assumptions

2000

2001

2002

2003

Cash

10%

10%

9%

9%

The projected sales of the same years are

Projected Income Statement

2000

2001

2002

2003

Net Revenues

3,286,245

3,680,594

4,011,847

4,252,558

Multiplying sales level with the projected cash percentage gives us the projected cash levels for each of the next four years

Projected Income Statement

2000

2001

2002

2003

Net Revenues

3,286,245

3,680,594

4,011,847

4,252,558

Cash – Assumptions

10%

10%

9%

9%

Cash – Projections

328,625

368,059

361,066

382,730

We can use a similar approach to project Net Receivables, Inventory, and Securities as well as Current and Long-term Liabilities.

Projected Income Statement

2000

2001

2002

2003

Net Revenues

3,286,245

3,680,594

4,011,847

4,252,558

Securities – Assumptions

12%

12%

12%

12%

Securities – Projections

394349

441,671

481,421

510,307

Receivable, Net – Assumptions

17%

16%

15%

14%

Receivables, Net – Projections

558662

588895

601777

595358

Inventory – Assumptions

7%

7%

7%

7%

Inventory – Projections

230037

257642

280829

297679

Current Liabilities – Assumptions

32%

31%

30%

30%

Current Liabilities – Projections

1051598

1140984

1203554

1275767

Long Term Liabilities – Assumptions

55%

57%

59%

60%

Long term Liabilities – Projections

1807435

2097939

2366990

2551535

Property, Plant and Equipment (Net as well as Gross) are also projected as a percentage of sales. Depreciation, however, is expressed as a percentage of gross assets, as mentioned earlier.

Projected Income Statement

2000

2001

2002

2003

Net Revenues

3,286,245

3,680,594

4,011,847

4,252,558

Property and Equipment, Gross
– Assumptions

174%

175%

176%

178%

Property and Equipment, Gross
– Projections

5,718,066

6,441,040

7,060,851

7,569,553

Depreciation – Assumptions

50%

51%

52%

53%

Depreciation – Projections

1,643,123

1,877,103

2,086,160

2,253,856

Putting all these individual items together we can obtain a complete picture of AMD’s assets and liability side of the balance sheet.

Balance Sheet Summary

2000

2001

2002

2003

Assets
Cash

328,625

368,059

361,066

382,730

Securities

394,349

441,671

481,421

510,307

Receivables, Net

558,662

588,895

601,777

595,358

Inventory

230,037

257,642

280,829

297,679

Total Current Assets

1,511,673

1,656,267

1,725,093

1,786,074

Property and Equipment, Gross

5,718,066

6,441,040

7,060,851

7,569,553

Depreciation

1,643,123

1,877,103

2,086,160

2,253,856

Net Fixed Assets

7,361,189

8,318,143

9,147,011

9,823,409

Total Assets

8,872,862

9,974,410

10,872,104

11,609,483

Liabilities
Current Liabilities

1,051,598

1,140,984

1,203,554

1,275,767

Long Term Liabilities

1,807,435

2,097,939

2,366,990

2,551,535

Total Liabilities

2,859,033

3,238,923

3,570,544

3,827,302

As we have used Equity as a plug, we do not have to calculate the Equity. But just to make sure we cover all the basics we’ll do it for AMD. Remember, Equity is used to balance Total Assets to Total Liabilities.

The equation is

Total Assets = Total Liabilities + Shareholder’s Equity

Or

Shareholder’s Equity = Total Assets – Total Liabilities

Balance Sheet Summary

2000

2001

2002

2003

Total Assets

8,872,862

9,974,410

10,872,104

11,609,483

Less
Total Liabilities

2,859,033

3,238,923

3,570,544

3,827,302

Equals
Total Stockholder’s Equity

6,013,829

6,735,487

7,301,560

7,782,181

The complete Balance Sheet looks like this

Balance Sheet Summary

2000

2001

2002

2003

Assets
Cash

328,625

368,059

361,066

382,730

Securities

394,349

441,671

481,421

510,307

Receivables, Net

558,662

588,895

601,777

595,358

Inventory

230,037

257,642

280,829

297,679

Total Current Assets

1,511,673

1,656,267

1,725,093

1,786,074

Property and Equipment, Gross

5,718,066

6,441,040

7,060,851

7,569,553

Depreciation

1,643,123

1,877,103

2,086,160

2,253,856

Net Fixed Assets

7,361,189

8,318,143

9,147,011

9,823,409

Total Assets

8,872,862

9,974,410

10,872,104

11,609,483

Liabilities
Current Liabilities

1,051,598

1,140,984

1,203,554

1,275,767

Long Term Liabilities

1,807,435

2,097,939

2,366,990

2,551,535

Total Liabilities

2,859,033

3,238,923

3,570,544

3,827,302

Total Stockholder’s Equity

6,013,829

6,735,487

7,301,560

7,782,181

Total Liabilities and Equity

8,872,862

9,974,410

10,872,104

11,609,483

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