Case in Finance

Case A

Prior to the outbreak of Covid-19 in Germany, the Berlin based brewing company Federbrau was very successful throughout the European continent. During 2019, the brewer reported net sales of € 415 million, 6% up from 2018. Internal auditors also determined its operating profit (EBIT) amounted to € 40 million in the same period. As part of their expansion strategy, they devoted substantial investments in net working capital, the company’s net book value increased from € 215 million to € 230 million, while net fixed assets remained stable at € 130 million. The company managed to maintain its capital structure with a debt to equity ratio of 0.75 and a 40% Equity Ratio.

Based on German corporate income tax of 25% and interest rate of 5.0%, calculate the following;

• Net Profit Margin (5 marks)

• Working Capital Requirement (WCR) and working capital ratio over sales for 2019 (5 marks)

• Post-tax Return On Invested Capital (ROIC) for 2019 (10 marks)

• Free Cash Flow (FCF) for 2019 (10 marks)

Case B

In 2019, Japanese electronic giant Sony Inc. had ¥ 16,5 million in operating income (EBIT). With the huge demand for their products, Sony experienced a net depreciation expense of ¥ 3,3 million coupled with an interest expense of ¥ 2,2 million. Being subject to strict Japanese corporate tax, its corporate income tax was 40%. Furthermore, to maintain their competitive advantage over their rival Samsung, they maintain ¥ 44 million in operating current assets and ¥ 15,4 million in operating current liabilities; Sony keeps ¥ 49,5 million in net fixed assets. It estimates that it has a post-tax cost of capital of 10%

Based on Sony’s only non-cash item being depreciation, calculate the following:

• Sony’s net income after taxes (NEAT) for the year? (5 marks)

• Sony’s Net Operating Profit After Taxes (NOPAT)? (5 marks)

• Sony’s net operating working capital (WC) and total net operating capital for the current year? (10 marks)

• If the Working Capital Ratio (WCR/sales) read 25% in 2019, what was Sony’s sales revenue? (10 marks)

• If total net operating capital was ¥ 75 million for the previous year (2018), what was Sony’s Free Cash Flow (FCF) in 2019? (10 marks)

Case C

Below is the company data for Apple Inc, currently being traded on the US markets. The measures are stated om millions of USD currency.

· Cash & marketable securities $165

· Fixed assets $286

· Net sales $1320

· Earnings Before Interests and Taxes (EBIT) $143

· Net Earnings After Taxes (NEAT ) $ 66

· Quick Ratio ((CA-Inventory)/CL) 2.1 to 1

· Current Ratio (CA/CL) 3.4 to 1

· Average Collection Period (ACP) 45.60 days

· Return on Equity (ROE, NEAT/Net Common Equity) 13%

· Tax rate 25%

For Apples Liabilities & Equity side, they only report common equity, debt and current operating liabilities.

Based on the detailed information above, find the following calculations;

• (1) Accounts Receivables, (2) Current Operating Liabilities, (3) Current Assets, (4) Total Assets, (5) Net Common Equity, and (6) Debt. (10 marks)

• With the increase in online commerce, assume Apple has decreased its ACP by 15.60 days (i.e., totaling 30 days) while holding all other variables constant, how much cash could they generate? (10 marks).

• What is Apple’s ROIC (post-tax) ? (10 marks)

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