# Financial Statement Analysis Application

Curriculum P646 Assume a company is formed with €100 of equity capital, all of which is immediately invested in working capital. Assumptions are as follow: Non dividend paying First year sale €100 Sale growth 10% per annum Cost of goods sold/sales 20% Operating expense/sales 70% Interest income rate 5% Tax rate 30% Working capital as % of sales 90% Based on the above information, we can get the forecast of the company’s net income and Cash Flow for 5 Years as below: Time 0 1 2 3 4 5 Sales 100 110 121 133.1 146.41 Cost of goods sold (20.00) (22.00) (24.20) (26.62) (29.28) Operating expense (70.00) (77.00) (84.70) (93.17) (102.49) Interest income 0.0 0.9 0.8 0.8 0.7 Income before tax 10.0 11.9 12.9 14.1 15.4 Taxes (3.00) (3.56) (3.87) (4.22) (4.61) Net Income 7.00 8.30 9.04 9.86 10.75 Cash/Borrowing 0 17 16.3 15.4 14.4 13.1 Working capital (non cash) 100 90.0 99.0 108.9 119.8 131.8 Total assets 100.0 107.0 115.3 124.3 134.2 144.9 Liability 0 0 0 0 0 0 Equity 100.0 107.0 115.3 124.3 134.2 144.9 Total liability+Equity 100.0 107.0 115.3 124.3 134.2 144.9 Net Income 0 7.00 8.30 9.04 9.86 10.75 Plus noncash item 0 0 0 0 0 0 Less: investment in working capital -10.0 9.0 9.9 10.9 12.0 Less: investment in fixed capital 0 0 0 0 0 0 Change in cash Question ONE: How to calculate the Investment in working capital? It seems to be the change between Working capital T-1 and Working capital T. Why? Question TWO: How to calculate the CHANGE IN CASH? Why it seems to be the sum of Net Income in NEGATIVE - investment in working capital? Thanks a lot I am in Paris.

I get it now…Not necessary to answer.