A Step by Step Guide to Construct a Financial Model without Plugs and without Circularity for Valuation Purposes

Ignacio VlezPareja Universidad Tecnolgica de Bolvar Cartagena, Colombia ivelez@unitecnologica.edu.co nachovelez@gmail.com

First version: May 28, 2008 This version: July 25, 2008

Electronic copy available at: http://ssrn.com/abstract=1138428

ABSTRACT In this teaching note the reader finds a simplified financial model. In reality, financial models are huge and cumbersome. This is a very simplified model compared with what is found in practice. We present some basic principles for constructing the financial statements needed for valuation. The reader is encouraged to construct the financial statements for herself on a spreadsheet. The relevant financial statements are: the Balance Sheet (BS), the Income statement (IS) and the Cash Budget (CB). The construction of the financial statements starts from policies and/or targets (i.e. accounts receivable policy or target). With these targets or policies we can construct the financial statements. The first table to be constructed is the table of parameters. This table organizes all of the relevant information. The subsequent tables are linked to the table of parameters via formulas. We construct other supplementary tables that will be used in the construction of the main financial statements. We indicate the formulas that have to be utilized in the construction of the financial model. In the first line and in the first column the reader finds the letters and numbers corresponding to the Excel spreadsheet in order to make it easier the localization and the construction of the formulas. In the last two columns we have written those formulas. Usually they correspond to the year 0 and/or year 1. When necessary, we show the formulas for other years and we indicate it. Shaded cells are for the input data. If the reader wishes to construct the model exactly as we did, she will be able to do that step by step. The contribution of this work is double: one is to show that we can construct financial statements without the use of plugs and circularity and the second is that we can use a very simple approach to construct cash flows and to value them. The model shown has two parts. One is the proper financial statements forecast. The second one is a simple cash flow calculation and valuation exercise using the Capital Cash Flow and assuming the risk of the tax savings equal to Ku, the cost of unlevered equity. KEY WORDS.
Accounting, Forecasting Financial Statements, Decision Making, plugs, Planning and control, double entry principle, unbalancing problem, cash flows, firm valuation, cost of unlevered equity.

JEL CLASSIFICATION D6, E47, G31,H43

ii

Electronic copy available at: http://ssrn.com/abstract=1138428

A Step by Step Guide to Construct a Financial Model without Plugs and without Circularity for Valuation Purposes
Introduction In this teaching note the reader finds a simplified financial model. In reality, financial models are huge and cumbersome. What we present is very simplified model in comparison to what is found in practice. We indicate the formulas that have to be utilized in the construction of the financial model. We have constructed the formulas in such a way that they can be used to construct part of or the complete model. In the first line and in the first column the reader finds the letters and numbers corresponding to the Excel spreadsheet in order to make it easier the localization and the construction of the different formulas. In the last two columns we have written those formulas. Usually the formulas correspond to the year 0 and/or year 1. When necessary, we show the formulas for other years and we indicate it. Shaded cells are for the input data. All input data are a number so we think that the model is parameterized, this is, expressed in terms of some selected parameters. The convenience of this approach is to allow for sensitivity analysis or even, Monte Carlo Simulation, MCS. The contribution of this work is double: one is to show that we can construct financial statements without the use of plugs and circularity and the second is that we can use a very simple approach to construct cash flows and to value them. The financial statements we construct are: Cash Budget, CB (similar to Cash flow Statements but more detailed and prospective), the Income Statement, IS and the Balance Sheet, BS. The model shown has two parts. One is the proper financial statements forecast. The second one is a simple cash flow calculation and valuation exercise using the Capital Cash Flow and assuming the risk of the tax savings equal to Ku, the cost of unlevered equity. We propose a way to construct the CCF from the CB because it is closer to the idea of cash flows. In fact, the CB lists all the cash transactions of a firm. We prefer this approach because we can "see" the items that are considered as part of the CCF. With this approach the probability of mistakes in the construction of the CCF is reduced. We expect the reader will find this approach more intuitive and easy to follow than the traditional. Vlez-Pareja and Tham 2007a, show how to proceed from historical financial statements to derive some input data for forecasting financial statements. Vlez-Pareja, 2007b, shows the inconveniences of using plugs and a procedure to avoid that malpractice. In both works the idea is that plugs are avoided if we recognize that the critical items in the financial statements are the calculation of debt and/or cash excess invested in market securities. Once we calculate the debt or investment in market securities for each year, interest earned and/or paid is based on the previous period balance of debt and/or market securities. That has been the rule we follow in constructing the forecasted financial statements.
1

Electronic copy available at: http://ssrn.com/abstract=1138428

On the other hand, one of the reasons to introduce circularity is that usually people work in terms of years. When this is done, we recognize that practitioners wish to reflect what happens within the year in terms of debt payment and short term investment. Hence, to recognize this, what is usually done is to consider debt and/or short term investment as an average of beginning and ending balance and from it they calculate the interest. With the power of current spreadsheets we could even work for daily periods is we wish.1 The approach includes the construction of intermediate tables. The interesting thing is that once we have the intermediate tables the IS and the BS are derived just picking the values from the intermediate tables. Please, construct the model trying to understand why we use the different cells that appear in the formula and do not use this assignment as a typing exercise. Remember that the tables and formulas come from an English version of Excel. You should use the proper configuration in your Excel file in order to obtain the same appearance in the formulas. For instance, if you are using Spanish configuration in Excel, then the function IF will be shown as SI and the function Sum will be shown as SUMA. On the other hand, the argument separators when you use the Spanish configuration in Excel is ; semicolon and when you use the English configuration is , comma. Critical issues in forecasting (and shown in the model) are three: 1. Calculation of short term deficit to define short term debt to cover operational deficits. 2. Calculation of long term deficit to define the long term debt and/or equity to cover capital investment deficits. 3. Calculation of excess cash to be invested in market securities. In the model we assume a given percent of long term deficit to be covered by debt and the remainder to be covered by equity. The model makes extensively use if the Fisher equation. This is a tool for calculating nominal rates (interest and price increases). Section Two An Example of Forecasting Without Plugs and Without Circularity Some features and assumptions of the model are: 1. No plugs.
1

The last Excel spreadsheet (Excel 2007) has more than 16,000 columns that would allow for more than 44 years in a daily period basis and more than 1,000,000 lines. We think that this is good enough to consider the need of introducing circularity in a financial model like the one we show here.

No circularity. A new firm (starting from zero). A simple firm with only one product A commercial firm that purchases a product to be sold at a higher price Taxes are paid the same year as accrued All the expenses are paid on a cash basis. The only credit is from the supplier of product and has to be paid the following year and an advance payment prior to the purchase. Part of the purchase is paid the same year when the purchase is done. 8. Customers have to pay some portion of the sales in advance. They pay 5% (Accounts Receivables) of the amount sold in the next period. The remaining amount has to be paid the current year. 9. Dividends are not greater than the Net Income of previous year. The payout ratio is 70% 10. Dividends are paid the next year after the Net Income is generated. 11. The firm can repurchase equity and the amount is defined as a percentage of the depreciation charge. (Depreciation retains cash in the firm that can be distributed). 12. In the model the limit of the repurchase of equity is the amount of depreciation charge. 13. Input prices are fixed and do not depend on volume purchased. 14. It is expected to invest in new assets (Capital expenditures, Capex) every year. There are two lines for investing in fixed assets: one is the investment of the amount of depreciation charge. The second is a fraction of current net fixed assets equal to the real growth expected for the next year. 15. Any deficit is covered by new debt and new equity investment. In the example, 60% of deficit is covered by long term debt, the rest by equity. Deficit in the after investment in fixed assets module (Module 2) should be covered with long term loans, and not with short term loans. 16. Deficit in the operating module (Module 1) should be covered with short term loans. 17. Short term loans will be repaid the following year. 18. Long term loans are repaid in 5 years for the first loan and in 10 years for the second. 19. Any cash excess is invested in short term securities. 20. Inventory valuation is done under the First in, First Out (FIFO) policy. 21. A deficit can arise in any year when a dynamic approach is used (input data can be changed and the results reflect that change. In this example we only consider two types long term loans and one short term (for illustration purposes). 22. Short term portion of debt is not considered in the current liabilities.

2. 3. 4. 5. 6. 7.

Section Three Concluding Remarks

After working out the model the reader will have the experience to have constructed a financial statement forecast without using the typical and popular tool of the plug and
3

circularity. On the other hand, she will find a very easy way to value cash flows (without circularity, as well). We expect to convince teachers and authors about the inconvenience of keeping the use of plugs a malpractice that might conceal many errors and mistakes. We invite the reader to practice with this model and profit from the approach to construct consistent financial statements and cash flows for valuation.

Bibliographic References
Vlez-Pareja, Ignacio and Tham, Joseph, 2007a, "Prospective Analysis: Guidelines for Forecasting Financial Statements" (Updated on May 4, 2008). Available at SSRN: http://ssrn.com/abstract=1026210 Vlez-Pareja, Ignacio, 2007b, "To Plug or Not to Plug, That is the Question: No Plugs, No Circularity: A Better Way to Forecast Financial Statements" (Updated on March 15, 2008). Available at SSRN: http://ssrn.com/abstract=1031735.

Appendix Financial Statements and Intermediate Tables

In the next tables the reader will find the figures and formulations taken directly from the spreadsheet. Although the idea is to encourage the reader to replicate the model, the completed spreadsheet is available from the author. Please feel free to write requesting the xls file.

B 3 4 5 6 7 check Input data. Datos de entrada Fixed assets. Activos fijos AF Lineal Depreciation (4 years)

C Year

D 0 0,0 45,0 4,0 15,0 35,0% 4,0 5,0 22,0 24,0

E 1 0,0

F 2 0,0

G 3 0,0

H 4 0,0

I 5 0,0

J 6

8 Equity investment. Inversin de patrimonio 9 Corporate tax rate. Tasa de impuestos 10 Initial inventory (units) Initial purchase price. Precio de compra 11 inicial Estimated Overhead expenses. Gastos 12 generales. GG Administrative and Sales payroll. Gastos 13 laborales. Long term (LT) years Loan 1 at (N years). 14 Plazo de Prstamo a largo plazo (N aos) Long term (LT) years Loan 3 (M years). 15 Plazo prstamo LP Short term loan 2 (1 year). Plazo prstamo a 16 corto plazo Taxes are paid the same year as accrued. Los impuestos se pagan el mismo ao que se 17 provisionan 18 Inflation rate. Tasa de inflacin Real increase in selling price. Aumento real 19 de precio de venta Real increase in purchase price. Aumento 20 real de precio de compra Real increase in overhead expenses. 21 Aumento real de GG Real increase in payroll expenses. Aumento 22 real de nmina. Increase in sales volume (units). Aumento 23 de volumen 24 Real interest rate. Tasa de inters real Risk premium for cost of debt. Prima de 25 riesgo para la deuda Risk premium for return on ST investment Prima de riesgo para la rentabilidad de la 26 inversin de corto plazo

5,0 10,0 1,0

6,0% 1,0% 0,5% 0,5% 1,5% 0,0% 2,0% 5,00%

5,5% 1,0% 0,5% 0,5% 1,5% 1,0%

5,5% 1,0% 0,5% 0,5% 1,5% 2,0%

5,0% 1,0% 1,0% 0,5% 1,5% 2,0%

4,5% 1,0% 1,0% 0,5% 1,5% 2,5%

4,0% 1,0% 1,0%

2,5%

-2,00%

Pag 1

B 3 4 check 27 Policies and goals. Polticas y metas Promotion and advertising as % of sales. 28 Gastos de publicidad y promocin Inventory as % of volume sold. Poltica de 29 inventario % de ventas del ao. Accounts receivable as % of sales. Cuentas 30 por cobrar CxC como % de ventas. Advance payments from customers as % of next year sales. Anticipos recibidos de clientes como % de las ventas del ao 31 siguiente Accounts payable as % of purchases. 32 Cuentas por pagar CxP como % de Compras Advance payments to suppliers as a % of next year purchases. Anticipo a proveedores 33 como % de las compras del ao siguiente Payout ratio. Proporcin de utilidades 34 repartidas % of sales as Cash. % de ventas como caja y 35 bancos % of financig with debt the rest is financed by equity. % de financiacin con deuda y el 36 resto con patrimonio Minimum cash required for initial year (based on overhead, payroll and sales comissions). Saldo mnimo de caja para ao 0 com % de gastos de nmina, GG y de 37 comisiones de ventas 38 Selling comissions. Comisiones de ventas Market research. Investigacin de mercado. Datos y coeficientes para simular el estudio de mercado y la elasticidad Selling price. Precio de venta. Coeficiente de elasticidad b Coeficiente de elasticidad b0

C Year Year

D 0 0,0 0

E 1 0,0 1 3,0% 1/12

F 2 0,0 2

G 3 0,0 3

H 4 0,0 4

I 5 0,0 5

J 6 6

1/12

1/12

1/12

1/12

5,0%

10,0%

10,0%

10,0%

70,0%

4,00%

60,00%

13,0 4,00%

39 40 41 42

7,0 -0,350 100,00

Pag 2

B 3 4 check Quantity sold for first year. Cantidad que se 43 espera vender para ao 1 Repurchase of equity as a % of funds generated by depreciation. Recompra de participacin como % de la depreciacin. Nominal increase in prices. Aumento nominal de precios. Selling. Venta Purchase. Compra Overhead expenses. GG Payroll expenses. Gastos de personal. Minimum cash required. Saldo mnimo de caja.

C Year

D 0 0,0

E 1 0,0

F 2 0,0

G 3 0,0

H 4 0,0

I 5 0,0

J 6

50,6 Frmula Q=b0Priceb

44 45 46 47 48 49 50 51

0% Year 0 1 7,1% 6,5% 6,5% 7,6% 15,17 1 1,000 2

0%

0% 3 6,6% 6,0% 6,0% 7,1% 17,74 3 1,020

0% 4 6,1% 6,1% 5,5% 6,6% 19,19 4 1,020

0% 5 5,5% 5,5% 5,0% 6,1% 20,77 5 1,025 6 1 5,0% =(1+E$18)*(1+E19)-1 5,0% =(1+E$18)*(1+E20)-1 =(1+E$18)*(1+E21)-1 =(1+E$18)*(1+E22)-1 =+$E$35*E103 1 2 =(1+F$18)*(1+F19)-1 =(1+F$18)*(1+F20)-1 =(1+F$18)*(1+F21)-1 =(1+F$18)*(1+F22)-1 =+$E$35*F103 2 =+(1+F23)

6,6% 6,0% 6,0% 7,1% 16,33 2 1,010

Year

Increase factor in volume. Factor de 52 aumento acumulado de volumen 53 Basic input variables calculation. Clculo de la proyeccin de las variables bsicas. Sales in units. Ventas en unidades. Selling price. Precio de venta Total sales. Ventas totales

1,025 =+(1+E23)

54 55 56 57 58 59 60

Year

1 50,6 7,5 379,3 1 8,12%

2 51,1 8,0 408,2 2 7,61%

3 52,1 8,5 443,6 3 7,61%

4 53,2 9,0 479,9 4 7,10%

5 54,5 9,5 519,1 5 6,59%

1 55,9 =+D43 10,0 =D40*(1+E46) 558,9 =+E56*E55 6 1 =((1+E18)*(1+$E$24)-1)

2 =E55*F52 =E56*(1+F46) =+F56*F55 2 =((1+F18)*(1+$E$24)-1)

Year

Risk free rate, Rf. Tasa libre de riesgo Return of short term investment from CAPM= Rf+risk premium of ST return. Tasa de inters de inversin a corto plazo CAPM = Rf+ prima de riesgo del 61 rentabilidad de inversiones de CP Cost of debt, Kd, from CAPM= Rf+risk premium in cost of debt. Costo de la deuda 62 = Rf + prima de riesgo 63

6,12%

5,61%

5,61%

5,10%

4,59%

=+E60+$E$26

=+F60+$E$26

13,12%

12,61% 12,61% 12,10% 11,59%

=E60+$E$25

=F60+$E$25

Pag 3

B 3 4 check Depreciation schedule. Tabla de 64 depreciacin 65 66 Beginning fixed assets. Saldo inicial AFN

C Year

D 0 0,0

E 1 0,0

F 2 0,0

G 3 0,0

H 4 0,0

I 5 0,0

J 6

Year

1 45,0

2 45,5

3 46,4

4 47,3

5 48,5

1 =+D77

2 =+E77

Annual depreciation year 0. Depreciacin 67 anual ao 0

Formula for year 1/Frmula para ao 1 Formula for year 2/Frmula para ao 2 Formula for year 3/Frmula para ao 3 Formula for year 4/Frmula para ao 4 Formula for year 5/Frmula para ao 5

11,3

11,3

11,3

11,3

=$D$77/$D$7

=$D$77/$D$7

Annual depreciation year 1. Depreciacin 68 anual ao 1

2,9

2,9

2,9

2,9

=+E76/D7

=+F68

Annual depreciation year 2. Depreciacin 69 anual ao 2

3,8

3,8

3,8

=+F76/D7

=+G69

Annual depreciation year 3. Depreciacin 70 anual ao 3

4,7

4,7

=+G76/D7

=+H70

Annual depreciation year 4. Depreciacin 71 anual ao 4 72 Annual depreciation. Depreciacin anual Cumulated depreciation. Depreciacin 73 acumulada Investment to keep level of fixed assets constant. Inversin para mantener los 74 activos fijos constantes Investment in fixed assets for growth. 75 Inversin en activos fijos para crecer 76 New fixed assets. Nuevos activos fijos 77 Net fixed assets. Activos fijos netos 78

6,0 11,3 11,3 14,2 25,4 17,9 43,4 22,7 66,0 17,4 83,4

=+H76/D7 =SUM(E67:E71) =+E72+D73 =SUM(F67:F71) =+F72+E73

11,3 0,5 11,7 45,5

14,2 0,9 15,1 46,4

17,9 0,9 18,9 47,3

22,7 1,2 23,8 48,5

17,4 1,2 18,6 49,7

=+E72 =+D77*F23 =+E75+E74 =+D6+D76

=+F72 =+E77*G23 =+F75+F74 =+E66+E76-E72

45,0

Pag 4

B 3 4 check Inventory valuation using FIFO. Valoracin 79 de inventarios PEPS Inventory and purchases in units. 80 Inventarios y compras en unidades 81 Units sold. Unidades vendidas Final inventory in units, Inventario final en 82 unidades Initial inventory in units. Inventario inicial 83 en unidades 84 Purchases in units. Compras en unidades Unitary cost of purchase. Costo unitario de 85 compra 86 87 Purchases in units- Compras en unidades Forecasted unit cost. Precio proyectado de 88 compra 89 Cost of goods sold (COGS) calculation. 90 Clculo del costo de ventas Initial inventory in dollars. Inventario inicial 91 en pesos 92 Purchases in dollars. Compras en pesos Final inventory in dollars. Inventario final 93 en pesos 94 COGS. Costo de ventas Administrative and selling expenses. Gastos 95 administrativos de y de ventas 96 Sales commisions. Comisiones de ventas 97 Overhead expenses. Gastos generales 98 Payroll expenses. Gastos de nmina 99 Advertising expenses. Gastos de publicidad Administrative and selling expenses. Gastos 100 de administracin y ventas 101

C Year

D 0 0,0

E 1 0,0

F 2 0,0

G 3 0,0

H 4 0,0

I 5 0,0

J 6

Year

0 0,0 4,0 0,0 4,0

1 50,6 4,2 4,0 50,8

2 51,1 4,3 4,2 51,2

3 52,1 4,3 4,3 52,2

4 53,2 4,4 4,3 53,3

5 54,5 4,5 4,4 54,6

0 55,9 0 0,0 =+D10 4,5 =C10 51,3 =D81+D82-D83

1 =+E55 =E81*E29 =D82 =E81+E82-E83

Year

0 4,0 5,00

1 50,8 5,33

2 51,2 5,65

3 52,2 5,99

4 53,3 6,35

5 54,6 6,70

0 51,3 =+D10 7,04 =+D11

1 =+E84 =+D88*(1+E47)

Year

0 0,0 20,0 20,0 0,0

1 20,0 270,7 22,5 268,3 1 15,2 23,4 25,8 11,4 75,8

2 22,5 288,9 24,1 287,3 2 16,3 24,8 27,7 12,2 81,1

3 24,1 312,7 26,0 310,7 3 17,7 26,3 29,6 13,3 87,0

4 26,0 338,2 28,1 336,1 4 19,2 27,8 31,6 14,4 92,9

5 28,1 366,1 30,4 363,8 5 20,8 29,2 33,5 15,6 99,0

0 30,4 =+D83*D88 361,4 =+D84*D88 =D88*D82 =+D91+D92-D93 0 =+D12 =+D13

1 =+D93 =+E84*E88 =E88*E82 =+E91+E92-E93 1 =+E57*$E$38 =D97*(1+E$48) =D98*(1+E$49) =E57*$E$28 =SUM(E96:E99)

Year

0 22,0 24,0

Pag 5

B 3 4 check 102 Sales and purchases. Ventas y compras 103 Total sales revenues. Ventas Inflow of sales revenues for current year. 104 Ingresos por ventas del ao en curso 105 Credit sales (1 year). Ventas a crdito 106 Payment in advance. Anticipo de clientes 107 Total purchases. Compras totales Purchases paid the same year. Compras 108 pagadas en el ao en curso Purchases on credit (1 year). Compras a 109 crdito Payment in advance to suppliers. Anticipo a 110 proveedores 111 Inflows from sales. Ingresos por ventas y 112 egresos por compras Inflow of sales revenues for current year. 113 Ingresos por ventas en el ao en curso Inflows from Accounts Receivables. 114 Ingresos de cartera Inflow for advance payments. Ingreso por 115 anticipos 116 Total inflows. Ingresos totales Purchases paid the current year. Compras 117 pagadas en el ao en curso Payment of Accounts Payable. Pago de 118 cuentas por pagar 119 Advance payment to suppliers Total payments for purchases. Pago total de 120 compras 121

C Year Year

D 0 0,0 0

E 1 0,0 1 379,3 322,4 19,0 37,9 270,7

F 2 0,0 2 408,2 346,9 20,4 40,8 288,9 231,1 28,9 28,9

G 3 0,0 3 443,6 377,1 22,2 44,4 312,7 250,2 31,3 31,3

H 4 0,0 4 479,9 407,9 24,0 48,0 338,2 270,6 33,8 33,8

I 5 0,0 5 519,1 441,3 26,0 51,9 366,1 292,9 36,6 36,6

J 6 6 0 558,9 475,1 27,9 55,9 361,4 289,1 =+D92 36,1 =D92-D108 36,1

1 =+E57 =+E57*(1-$E$30-$E$31) =+E57*$E$30 =+E103*$E$31 =+E92 =+E92*(1-$E$32-$E$33) =+E107*$E$32 =+E107*$E$33

20,0 0,0

216,6 27,1 27,1

Year

0 0 37,9 37,9 20,0 0,0 27,1 47,1

322,4 0,0 40,8 363,2 216,6 0,0 28,9 245,5

346,9 19,0 44,4 410,3 231,1 27,1 31,3 289,5

377,1 20,4 48,0 445,5 250,2 28,9 33,8 312,9

407,9 22,2 51,9 482,0 270,6 31,3 36,6 338,5

441,3 24,0 55,9 521,2 292,9 33,8 36,1 362,8

=+D104 =C105 =+E106 =+D114+D113+D115 =+D108 =C109 =+E110 =+D118+D117+D119

=+E104 =D105 =+F106 =+E114+E113+E115 =+E108 =D109 =+F110 =+E118+E117+E119

Pag 6

B 3 4 check 122 Cash Budget. Flujo de Tesorera Module 1: Operating activities. Modulo 1: 123 Actividades operativas 124 Cash inflows. Ingresos de caja. Total AR plus sales on cash. Total de 125 ingresos por ventas y cartera 126 Total inflows. Total de ingresos 127 Cash outflows. Egresos Total payments for purchases. Pago total de 128 compras Administrative and selling expenses. Gastos 129 de administracin y ventas 130 Income Taxes. Impuesto de renta 131 Total cash outflows. Egresos totales Net cash balance NCB before fixed assets purchase. Saldo neto de caja antes de 132 compra de activos Module 2: Investment in assets. Mdulo 2: 133 Inversin en activos fijos Purchase of fixed assets. Compra de activos 134 fijos Investment in fixed assets. Inversin en 135 activos fijos. NCB of investment in assets. Saldo neto 136 de caja SNC por compra de activos NCB after fixed assets investment. Saldo neto de caja SNC despus de compra de 137 activos.

C Year

D 0 0,0

E 1 0,0

F 2 0,0

G 3 0,0

H 4 0,0

I 5 0,0

J 6

Year

37,9 37,9

363,2 363,2

410,3 410,3

445,5 445,5

482,0 482,0

521,2 521,2

=+D116 =SUM(D125:D125)

=+E116 =SUM(E125:E125)

47,1

245,5 75,8 6,0 327,3

289,5 81,1 7,6 378,1

312,9 87,0 8,6 408,5

338,5 92,9 8,9 440,4

362,8 99,0 12,9 474,8

=+D120

=+E120 =+E100 =+E200 =SUM(E128:E130)

47,1

=SUM(D128:D130)

-9,1

35,9

32,2

37,0

41,6

46,4

=D126-D131

=E126-E131

45,0 11,7 15,1 18,9 23,8 18,6

=+D6 =+E76

-45,0

-11,7

-15,1

-18,9

-23,8

-18,6

=-D134-D135

=-E135-E134

-54,1

24,2

17,1

18,1

17,8

27,8

=+D136+D132

=+E132+E136

Pag 7

B 3 4 check Module 3: External financing. Mdulo 3: 138 Financiacin externa 139 Inflow of loans. Ingreso de prstamos LT Loan 1 - 5 years. Prstamo de largo 140 plazo a 5 aos

C Year

D 0 0,0

E 1 0,0

F 2 0,0

G 3 0,0

H 4 0,0

I 5 0,0

J 6

30,0

=IF((D136+D152)>0,0,(D136+D152)) =IF(D132-D$37>0,0,-(D132D$37)) =IF((D163+E132-E146-E147E$50)>0,0,-(D163+E132-E146E147-E$50)) =IF((D163+E137+E141-E144E145-E146-E147-E148-E149E153-E154+E158+E159E$50)>0,0,-(D163+E137+E141E144-E145-E146-E147-E148E149-E153-E154+E158+E159E$50))*$E$36

141 ST Loan 2. Prstamo a corto plazo

22,1

0,00

0,00

0,00

0,00

0,00

LT loan 3 10 years. Prstamo a largo 142 plazo de 10 aos 143 Payment of loans. Pago de prstamos Principal LT loan 1. Abono a capital del 144 prstamo de LP a 5 aos Interest LT loan 1. Intereses del 145 prstamo a LP 146 Principal ST loan 2. Abono a capital CP Interest ST loan 2. Intereses de prstamo a 147 CP Principal LT loan 3. Abono de prstamo 148 a LP 149 Interest LT loan 3. Intereses a LP NCB of financing actividies. SNC de la 150 financiacin

7,76

1,58

2,05

2,77

0,00

6,0 3,9 22,1 2,9 0,0 0,0 52,1 -27,2

6,0 3,0 0,0 0,0 0,8 1,0 -9,2

6,0 2,3 0,0 0,0 0,9 1,1 -8,2

6,0 1,5 0,0 0,0 1,1 1,2 -7,0

6,0 0,7 0,0 0,0 1,4 1,3 -9,4 =SUM(D140:D149)

=+E170 =+E169 =+D141 =+E177 =+E185 =+E184 =SUM(E140:E142)SUM(E144:E149)

Pag 8

B 3 4 check Module 4: Transactions with owners. 151 Mdulo 4: transacciones con los dueos 152 Invested equity. Patrimonio invertido 153 Dividends payment. Pago de dividendos 154 Repurchase of stock. Recompra de acciones NCB of transactions with owners. SNC de 155 las transacciones con los dueos 156 NCB for the year after previous transactions Module 5: Discretionary transactions. 157 Mdulo 5: Transacciones discrecionales Liquidation of short term ST investment. Liquidacin o vencimiento de inversiones 158 temporales Return from ST investments. Rendimiento 159 de las inversiones temporales

C Year

D 0 0,0

E 1 0,0

F 2 0,0

G 3 0,0

H 4 0,0

I 5 0,0

J 6

15,0

5,2 0,0 0,0

1,1 7,8 0,0 -6,7 1,2

1,4 9,8 0,0 -8,5 1,4

1,8 11,2 0,0 -9,3 1,4

0,0 11,6 0,0 -11,6 6,8

=D8

=+E142*(1-$E$36)/$E$36 =D202 =E204

15,0 13,0

5,2 2,2

=+D152-D153-D154 =+D155+D150+D137

=E152-E153-E154 =E155+E150+E137

0,0

0,0

0,0

0,0

0,0

=D160

0,0

0,0

0,0

0,0

0,0

160 ST investments. Inversiones temporales NCB of discretionary transactions. SNC de 161 transacciones discrecionales 162 Year NCB. SNC del ao 163 Cumulated NCB. SNC acumulado 164 165

0,00 0,0 13,0 13,0

0,00 0,0 2,2 15,2

0,00 0,0 1,2 16,3

0,00 0,0 1,4 17,7

0,00 0,0 1,4 19,2

5,20 -5,2 1,6 20,8

=E61*E158 =IF(C163+D156+D158+D159=IF(D163+E156+E158+E159D37>0,C163+D156+D158+D159- E50>0,D163+E156+E158+E159D37,0) E50,0) =+D158+D159-D160 =+D132+D136+D150+D155+D1 61 =+D162 =E158+E159-E160 =+E161+E155+E150+E136+E13 2 =+D163+E162

Pag 9

B 3 4 check LT Loan 1 schedule. Tabla de amortizacin 166 LP 167 168 Beginning balance. Saldo inicial 169 Interest payment LT1. Pago de intereses 170 171 172 173 Principal payments LT 1. Abono a capital Total payment LT1. Pago total Ending balance. Saldo final Interest rate. Tasa de inters ST Loan 2 schedule. Tabla de amortizacin 174 CP 175 176 Beginning balance. Saldo inicial 177 Interest payment ST Pago de intereses CP 178 179 180 181 182 183 Principal payments ST Abono a capital CP Total payment ST Pago total CP Ending balance. Saldo final Interest rate. Tasa de inters

C Year

D 0 0,0

E 1 0,0

F 2 0,0

G 3 0,0

H 4 0,0

I 5 0,0

J 6

Year

1 30,0 3,9 6,0 9,9 30,0 24,0 13,12%

2 24,0 3,0

3 18,0 2,3

4 12,0 1,5

5 6,0 0,7

1 =D172 =E173*E168 =+($D$172)/$D$14 =E169+E170 =E168-E170 =+E62

6,0 6,0 6,0 6,0 9,0 8,3 7,5 6,7 18,0 12,0 6,0 0,0 12,61% 12,61% 12,10% 11,59%

=+D140

Year

2,9 22,1 25,1 22,1 0,0 13,12% 0 1 0,0 0,0 0,0 0,0 0,0 7,8 13,12%

0,0

0,0

0,0

0,0

=+D180*E181 =+D180/$D$16 =SUM(E177:E178) =+D180-E178+E141 =+E173 1 =+D187 =+E188*D187 =+D185+D142/$D$15 =E184+E185 =+E183-E185+E142 =E173

Year Beginning balance. Saldo inicial

0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 12,61% 12,61% 12,10% 11,59% 2 3 4 5 7,8 8,6 9,7 11,3 1,0 1,1 1,2 1,3

=+D141 0

184 Interest payment LT3. Pago de intereses 185 186 187 188 189 Principal payments LT 3. Abono a capital Total payment LT3. Pago total Ending balance. Saldo final Interest rate. Tasa de inters

0,8 0,9 1,1 1,4 1,8 2,0 2,3 2,7 8,6 9,7 11,3 9,9 12,61% 12,61% 12,10% 11,59%

=+D142

Pag 10

B 3 4 check 190 Income Statement. Estado de resultados 191 Sales revenues. Ventas 192 Cost of goods sold, COGS. Costo de ventas 193 Gross Income. Utilidad bruta Administrative and selling expenses. Gastos 194 de ventas y administrativos 195 Depreciation. Depreciacin Earnings Before Interest and Taxes 196 (EBIT). Utilidad operativa Interest payments. Gastos financieros (pago 197 de intereses) Return (interest) from ST investment. 198 Inters recibido Earnings BeforeTaxes EBT, Utilidad antes 199 de impuestos 200 Income Taxes. Impuesto de renta 201 Net Income. Utilidad neta Dividends paid next year. Dividendos 202 pagados al ao siguiente Cumulated retained earnings. Utilidades 203 acumuladas Repurchase of equity. Recompra de 204 acciones 205

C Year Year

D 0 0,0 0

E 1 0,0 1 379,3 268,3 111,0 75,8 11,3 24,0 6,8 0,0 17,1 6,0 11,1 7,8 0,0 0,0

F 2 0,0 2 408,2 287,3 120,9 81,1 14,2 25,6 4,0 0,0 21,6 7,6 14,0 9,8 3,3 0,0

G 3 0,0 3 443,6 310,7 132,9 87,0 17,9 27,9 3,3 0,0 24,6 8,6 16,0 11,2 7,5 0,0

H 4 0,0 4 479,9 336,1 143,7 92,9 22,7 28,1 2,6 0,0 25,5 8,9 16,6 11,6 12,3 0,0

I 5 0,0 5 519,1 363,8 155,4 99,0 17,4 39,0 2,0 0,0 37,0 12,9 24,0 16,8 17,3 0,0

J 6 1 =+E57 =+E94 =E191-E192 =+E100 =+E72

2 =+F57 =+F94 =F191-F192 =+F100 =+F72 =F193-F194-F195 =+F169+F184+F177 =+F61*E160 =F196+F198-F197 =IF(F199<=0,0,F199*$D$9) =F199-F200 =F201*$E$34 =+E203+E201-E202 =+F195*F44

=E193-E194-E195 =+E169+E184+E177 =+E61*D160 =E196+E198-E197 =IF(E199<=0,0,E199*$D$9) =E199-E200 =E201*$E$34 =+D203+D201-D202 =+E195*E44

Pag 11

B 3 4 206 207 208 209 210 211 212 213 214 215 216 217 218 219 220 221 222 223 224 225 226 227 228 Accounts Payable AP. Cuentas por pagar, CxP Advance payments from customers. Anticipo de ventas Short term debt. Deuda a corto plazo Current liabilities. Pasivos corrientes Long term debt. Deuda largo plazo Total Liabilities. Pasivos totales Equity investment. Inversin de capital Retained earnings. Utilidades retenidas Current year Net Income. Utilidades del ejercicio Repurchase of equity. Recompra de acciones Total Liabilities and equity. Total pasivos y patrimonio Check IT check Balance Sheet. Balance general Assets. Activos Cash. Caja y bancos Accounts Receivable AR. Cuentas por cobrar CxC Inventory. Inventario Advance payments to suppliers. Anticipo a proveedores ST investments. Inversiones temporales Current assets. Activos corrientes Total net fixed assets. Total de activos fijos netos Total Liabilities and equity. Pasivos y patrimonio

C Year

D 0 0,0

E 1 0,0 1 15,2 19,0 22,5 28,9 0,0 85,5 45,5 130,94

F 2 0,0 2 16,3 20,4 24,1 31,3 0,0 92,1

G 3 0,0 3 17,7 22,2 26,0 33,8 0,0 99,8

H 4 0,0 4 19,2 24,0 28,1 36,6 0,0 107,9 48,5 156,41

I 5 0,0 5 20,8 26,0 30,4 36,1 5,2 118,5 49,7 168,18

J 6

Year CB IT IT

0 13,0 0,0 20,0 27,1 0,0 60,1 45,0 105,07 52,1 0,0 37,9 22,1 60,1 30,0 90,1 15,0 0,0

0 =D163 =D105 =+D93 =+D119 =+D160 =SUM(D208:D212) =+D77 =+D214+D213 =+D219+D221

1 =E163 =E105 =+E93 =+E119 =+E160 =SUM(E208:E212) =+E77 =+E214+E213

CB

IT

46,4 47,3 138,42 147,05

27,1 40,8 0,0 67,9 31,8 99,6 20,2 0,0 11,1 0,0

28,9 44,4 0,0 73,3 26,6 99,8 21,2 3,3 14,0 0,0

31,3 48,0 0,0 79,3 21,7 100,9 22,6 7,5 16,0 0,0

33,8 51,9 0,0 85,7 17,3 103,0 24,4 12,3 16,6 0,0 156,41 0,0

36,6 55,9 0,0 92,5 9,9 102,4 24,4 17,3 24,0 0,0 168,18 0,0

=D109 =+D115 =+D180 =SUM(D217:D219) =+D172+D187 =++D221+D220 =+D8 =D203

=E109 =+E115 =+E180 =SUM(E217:E219) =+E172+E187 =+E221+E220 =+D223+E152 =E203 =+E201 =-E154

CB CB ID IS

105,07 0,0

130,94 0,0

138,42 147,05 0,0 0,0

=SUM(D217:D226)-D222-D220 =D227-D215

=SUM(E217:E226)-E222-E220 =E227-E215

Pag 12

B 3 4 check 229 230 Input data for Valuation purposes

C Year Year

D 0 0,0 0

E 1 0,0 1

F 2 0,0 2 Unlevered Beta. Beta desapalanca da

G 3 0,0 3

H 4 0,0 4

I 5 0,0 5

J 6 6

231 Damodaran FoodConfectionery 232 Inversiones Nacionales De Chocolates FoodMisc/Diversifie d Food-Retail Average Unlevered Beta u

Levered D/P Beta. Beta de la accion.

0,8880

0,1188

0,7937065

233 Inversiones alimenticias Noel S.A. 234 Carulla Vivero S.A.

0,5840 0,5810

0,0387 0,5880

0,5622376 0,3658783

235 Promedio 236 Inflation yr 0. Inflacin ao 0 US Market Risk Premium MRP. Proma de 237 riesgo de mercado PRM USA 238 US Inflation yr 0. Inflacion USA ao 0 Change in exchange rate. Cambio de precio 239 del USD 240 Country risk. Riesgo pas Rp Adjusted Market Risk Premium MRP. 241 Prima de riesgo de mercado PRM ajustada 242 Risk free rate, Rf. Tasa libre de riesgo, Rf Observed Ku, cost of unlevered equity. Ku 243 nominal observado en ao 0 244 Real Ku yr 0. Ku real observado en ao 0 Constant leverage in perpetuity. 245 Endeudamiento constante a perpetuidad Expected inlfation rate for perpetuity. 246 Inflacin esperada ao 6 y siguientes Real growth rate. crecimiento g real ao 6 247 en adelante 248 249

0,573941 5,01% 7,00% 1,98% 2,00% 1,17%

<====

7,2% 7,1% 12,4% <===== 7,1% <==== Calcular a =====> a =====> a =====> 30% 0% 0%

=(D237)*(1+D236)/(1+D238)

=+D242+D235*D241+D240 =+(1+D243)/(1+D236)-1

Pag 13

B 3 4 check 250 Cash Flow to Debt CFD. Flujio de caja de la 251 deuda, FCD 252 Loan inflows. Ingreso de prstamos 253 Principal payments. Pago de capital 254 Interest payments. Pago de intereses 255 CFD FCD 256 257 Cash flow to equity, CFE Flujo de caja del 258 accionista, FCA 259 Equity investment. Aportes de patrimonio 260 Dividends. Uilidades o dividendos 261 Stock repurchases. Recompra de acciones 262 CFE FCA 263 Capital Cash Flow, CCF = CFE + CFD. Flujo de caja de capital, FCC = FCA + FCD

C Year Year

D 0 0,0 0

E 1 0,0 1

F 2 0,0 2

G 3 0,0 3

H 4 0,0 4

I 5 0,0 5

J 6 6 0

-52,1 0,0 0,0 -52,1

-7,8 28,1 6,8 27,2

-1,6 6,8 4,0 9,2

-2,1 6,9 3,3 8,2

-2,8 7,1 2,6 7,0

0,0 7,4 2,0 9,4

=-SUM(D140:D142) =D144+D146+D148 =+D145+D147+D149 =SUM(D252:D254)

=-SUM(E140:E142) =E144+E146+E148 =+E145+E147+E149 =SUM(E252:E254)

-15,0 0,0 0,0 -15,0

-5,2 0,0 0,0 -5,2

-1,1 7,8 0,0 6,7

-1,4 9,8 0,0 8,5

-1,8 11,2 0,0 9,3

0,0 11,6 0,0 11,6

=-D152 =+D153 =+D154 =SUM(D259:D261)

=-E152 =+E153 =+E154 =SUM(E259:E261)

264 265 266 267 268 269 270 271 272 273 274 275 276 277 278 279 280 281

-67,1

22,1

15,9

16,7

16,3

21,0

=+D262+D255

=+E262+E255

Real Ku, Ku real, ku Inflation rate. Tasa de Inflacion Nominal Ku. Ku nominal Input Data for perpetuity. Datos de entrada para perpetuidad Endeudamiento constante a perpetuidad, D% Inflation rate for perpetuity. Inflacin ao 6 en adelante Tax rate, T. Tasa de impuestos. Real growth, g. Crecimiento real g Real interest rate. Tasa real de inters Risk premium for debt. Prima de riesgo para la deuda g nominal del ao 6 en adelante kd Kd ku para N+1 y siguientes Ku para N+1 y siguientes

7,05% 7,05% 5,01% 6,0% 12,42% 13,48% Year 0 1

7,05% 7,05% 7,05% 7,05% 5,5% 5,5% 5,0% 4,5% 12,94% 12,94% 12,41% 11,87% 2 3 4 5 6 30,00% 0,00% 35,00% 0,00% 2,0% 5,00% 0,00% 7,00% 7,00% 7,05% 7,05%

=+$D$244 =+D236 =+(1+D267)*(1+D268)-1 6

=+$D$244 =+E18 =+(1+E267)*(1+E268)-1

=+(1+J274)*(1+J272)-1 =+J276+J275 =+(1+J278)*(1+J272)-1 =+D244 =+(1+J280)*(1+J272)-1

Pag 14

B 3 4 check 282

C Year

D 0 0,0

E 1 0,0

F 2 0,0

G 3 0,0

H 4 0,0

I 5 0,0

J 6

WACC perpetuity real, wacc. CPPC real, 283 cppc = ku-kdxTxD% WACC perpetuity. CPPCperp =Ku284 KdxTxD% 285 Year NOPLAT = EBITx(1_T) UODI = Uox(1286 T) TV = NOPLATx(1+g)/cppc 287 VT=UODIx(1+gr)/cppc 288 289 Cash Caja y bancos AR. (discounted at cppc CxC (descontadas a 290 cppc perp) 291 Market securities Inversin temporales AP (discounted with cppc) CxP 292 (descontadas a CPPCperp) Realization of Current assets, net. 293 Liquidacin neta de activos corrientes 294 Adjusted TV- VT ajustado 295 Year 296 CCF FCC 297 V 298 299 Equity. Patrimonio = V - D V - D Lt - D ST Invested capital. Capital invertido= Act 300 total -pas corriente+ st debt NPV firm. VPN firma= Vr firma - Cap 301 invertido 302 NPV equity. VPN patrimonio

=+J2806,32% J273*J271*((1+J279)/(1+J272)-1) 6,32% =+J281-J279*J271*J273 6 6 25,3374 =+I196*(1-D9) 401,0 =+I286*(1+J274)/J283

5 25,3 401,0 20,8 24,4 5,2 -34,4 15,9 416,9 5 21,0 416,9 407,0 75,7

0 294,0 241,9 67,1 226,9 226,9

1 22,1 311,6 279,9

2 15,9 336,0 309,5

3 16,7 362,8 341,1

4 16,3 391,5 374,2

15,9 =SUM(I289:I292) 416,9 =+I293+I287 6 6

1 =+E264 =+(F296+F297)/(1+F269) =+E297-E219-E221

=+D297-D219-D221 =+D215-D220+D219 =+D297-D300 =+D299-D223

Pag 15