public companies issue management forecasts however W r i t i n g
Would I want to invest in this company and at what price?
Make a forecast of income statements and balance sheet for up to 10 years period, stating each needed assumption separately. You may use methods similar to those used in cases in lectures 6 to 10. You should justify why you are making that assumption (is it based on recent trends, on competitors). If possible, include in your write-up a list of the assumptions that you have used to make your forecasts.
Discuss whether the company has reached a steady-state, that is, a point at which financials grow at a constant rate. If the company has reached steady-state in less than 10 years, you may only forecast up to 5 years. You should forecast starting from revenue, down to net income, and provide the implied income statements and balance sheets over time. Calculate the company’s free cash flow.
An excel spreadsheet should accompany your calculations. Although your write-up should have the assumptions, your excel should also have cells that explain each assumption (next to each line, write briefly the assumption that you have used).
In some cases, you may find some external information to guide your forecast. Many companies have management forecasts (available on their investor relations pages), which indicate expectations over one quarter to a year. Not all public companies issue management forecasts however, and these forecasts rarely cover more than a year and, for the most part, tend to focus on bottom-line or earnings per share.
Alternatively, you may use the growth rate of the company, its competitors or the long-term growth rate of the industry. Make sure you separate the assumptions you use for forecasting within the next few years (which may be closely tied to the recent performance of the company or its competitors), from assumptions you use to forecast the long-term of steady-state of the company, which may be guided by the long-term growth rate of the industry or of the economy.