Assignment Task
Case Business Analysis and Valuation
NMG, Inc. is a clothing manufacturer that designs and markets new women’s clothing. The company just closed Fiscal Year 2023 ending December 31st and completed the balance sheet and income statement. You are hired as a clothing manufacturer and asked to perform the following tasks:
1-Prepare a forecasted income statement, balance sheet, and cash flow statement for the company for 2024.
2- a- Calculate the listed financial ratios for 2023
b- Using the past three years’ data for the company, perform a financial ratio analysis.
3-Compare and contrast the company’s 2023 ratios with those of the industry.
Forecasting assumptions for 2024:
1- Revenue will grow by 10% and the tax rate will be 21%
.2- The CAPEX will be 6.5% of Revenue and Depreciation expense will be 6.2% of Property, equipment, and leasehold improvements gross at the start of the year which was $10, 985 million.
3- The company issues $105 million of stock-based compensation, and it is fully vested. Additional paid-in capital will increase by the same amount. The company includes this form of compensation in operating expenses.
4- The company has a dividend payout ratio of 25.6% of net income.
5- No change in the following income statement accounts: Amortization of intangibles, Interest income, Interest expense, and Other, net.
6- No change in the following balance sheet statement accounts Goodwill, Long-term debts less current portion, Ordinary shares, or Other comprehensive loss.
7- There is no change in macroeconomic readings, including the inflation rate.
8- The Restructuring and other, net is zero.
9- Consider the following accounts increase based on the percentage of the revenue in 2024.
| Accounts receivable, net | 8.20% |
| Inventories | 8.20% |
| Other current assets | 2.50% |
| Deferred income taxes | 9.20% |
| Other assets, net | 1.80% |
| Accounts payable | 14.50% |
| Accrued employee compensation | 2.40% |
| Accrued warranty | 0.85% |
| Accrued expenses | 6.40% |
| Long-term accrued warranty | 1% |
| Other non-current liabilities | 1.20% |
| RATIO ANALYSIS | NMG, Inc. 2023 | Industry Average |
| CURRENT RATIO | 1.98 | |
| QUICK RATIO | 1.24 | |
| INVENTORY TURNOVER (days) | 93 | |
| INTEREST COVERAGE | 4.26 | |
| ASSET TURNOVER (days) | 529 | |
| RECEIVABLES TURNOVER (days) | 58 | |
| GROSS MARGIN | 32.50% | |
| OPERATING MARGIN | 7.30% | |
| PROFIT MARGIN | 5% | |
| ROA | 3.70% | |
| ROE | 6.70% | |
| Debt to equity | 1.01 | |
| Dividend payout ratio | 0.28 |
| NMG, Inc. | |||
| Net Income statements (in millions) | 2023 | 2022 | 2021 |
| for the year ending December 31. | |||
| Revenue | $10,390 | $11,184 | $10,771 |
| Cost of Revenue | $6,939 | $7,261 | $7,058 |
| Gross Profit | $3,451 | $3,923 | $3,713 |
| Product Development | $991 | $1,026 | $1,232 |
| Marketing and Administrative | $453 | $562 | $606 |
| Depreciation | $520 | $559 | $539 |
| Amortization of Intangibles | $23 | $53 | $104 |
| Restructuring and other, net | ($22) | $89 | $178 |
| Stock-based compensation | $0 | $0 | $0 |
| Total Operating Expenses | $1,965 | $2,289 | $2,659 |
| Income from Operations | $1,486 | $1,634 | $1,054 |
| Interest Income | $84 | $38 | $12 |
| Interest Expense | ($224) | ($236) | ($222) |
| Other, net | $25 | ($18) | ($29) |
| Other expenses, net | ($115) | ($216) | ($239) |
| Income before Income Taxes | $1,371 | $1,418 | $815 |
| (Benefit) provision for income taxes | ($640) | $236 | $43 |
| Net Income | $2,011 | $1,182 | $772 |
| NMG, Inc. | |||
| Consolidated Balance Sheets | |||
| (In millions except share and per share data) | 2023 | 2022 | 2021 |
| as of December 31. | |||
| Current Assets | |||
| Cash and Cash Equivalents | $2,220 | $1,853 | $2,539 |
| Accounts receivables, net | $989 | $1,184 | $1,199 |
| Inventories | $970 | $1,053 | $982 |
| Other current assets | $184 | $220 | $321 |
| Total current assets | $4,363 | $4,310 | $5,041 |
| Property, Equipment, and leasehold improvements, net | $1,869 | $1,792 | $1,875 |
| Investment in debt security | $0 | $1,275 | $0 |
| Goodwill | $1,237 | $1,237 | $1,238 |
| Other intangible assets, net | $111 | $188 | $281 |
| Deferred income taxes | $1,114 | $417 | $609 |
| Other assets, net | $191 | $191 | $224 |
| Total Assets | $8,885 | $9,410 | $9,268 |
| Current Liabilities |
| Accounts payable | $1,420 | $1,728 | $1,626 |
| Accrued employee compensation | $169 | $253 | $237 |
| Accrued warranty | $91 | $112 | $113 |
| Current portion of long-term debt | $0 | $499 | $0 |
| Accrued expenses | $552 | $598 | $650 |
| Total current liabilities | $2,232 | $3,190 | $2,626 |
| Long-term accrued warranty | $104 | $125 | $120 |
| Long-term accrued income taxes | $4 | $10 | $15 |
| Other non-current liabilities | $130 | $100 | $122 |
| Long-term debt less current portion | $4,253 | $4,320 | $5,021 |
| Total Liabilities | $6,723 | $7,745 | $7,904 |
| Shareholders’ Equity | |||
| Ordinary shares-par value $0.0001, 2.6 billion shares | |||
| authorized, 1,354,218,154, and 1,340,697,595 shares | |||
| issued and outstanding, respectively | |||
| Additional paid-in capital | $6,545 | $6,377 | $6,152 |
| Accumulated other comprehensive Income (loss) | ($34) | ($16) | ($17) |
| Retained Earnings | ($4,349) | ($4,696) | ($4,771) |
| Total Shareholders’ equity | $2,162 | $1,665 | $1,364 |
| Total liabilities and shareholders’ equity | $8,885 | $9,410 | $9,268 |
