Assumptions for the Coke Pro Forma Homework
The course website links Coke’s 2018 summary financials. Forecast the income statement, balance sheet and statement of cash flows for Coke through 2028 based on the following assumptions. If you feel a need to make additional assumptions, feel free to state them.
• Sales growth will be 4% in 2019, 3.5% in 2020, and 3% thereafter. • Cost of Goods Sold will be 37% of sales. • SG&A will be 32% of sales. • Other Income will be $0 going forward. • Interest Expense will be $919 in 2018 and thereafter. • The tax rate will be 20% of pretax income. • Cash will grow at the growth rate of sales. • Short Term Investments will remain constant at 2018 levels. • Operating assets and liabilities will grow with sales. • PP&E (Gross) will grow with the growth rate of sales reflecting cash purchases of PP&E. • Accumulated Depreciation will be 50% of PP&E (Gross) each period, implying depreciation expense for the period • There will be no PP&E dispositions (or the capital expenditures and depreciation can be viewed as net of dispositions). • Other Assets (investments and goodwill) will grow with sales (changes go in the Investing section of the Statement of Cash Flows). • Interest-Bearing Debt (loans, notes payable and long-term debt) will remain constant at 2018 levels. • Contributed Capital will remain constant. • Other Shareholders’ Equity will remain constant. • Dividends will be 50% of Net Income. • Excess cash going forward (i.e., cash inflows that would otherwise cause Cash on the balance sheet to grow faster than the growth rate of sales) will be used to repurchase shares; this is a plug that should make your cash flows tie to the change in cash and your balance sheet balance. This is the only tricky part–do it last. Figure out the rest of the balance sheet then plug Treasury Stock to make it balance. You will need to plug it as (Total Assets – Total Liabilities – Contributed Capital – Retained Earnings – Other Shareholders’ Equity) to avoid a circular reference. Then, the change in Treasury Stock will be a cash outflow on the “Share Repurchases” line in the Financing section on the Statement of Cash Flows. • The spreadsheet will calculate the implied values for you. The discounted cash flows model will subtract existing interest bearing debt net of excess “cash” (Short Term Investments on the spreadsheet).