Company name Fortescue Metals Important: Before you run this spreadsheet, go into preferences in Excel and check under Calculation options

There should be a check against the iteration box. If there is not, you will get circular reasoning errors.

Revenues ############## Trailing 12 months

Operating income or EBIT ############## Trailing 12 months

Book value of equity ############## 31-Dec-13

Book value of debt ############## 12/31/2011 + Leases

Cash ############## 31-Dec-13

Number of shares outstanding = 3113798151.00 31-Dec-13

Current stock price = 5.34$ 24-Apr-14

Tax rate = 30.00% Tax rate from trailing 12 months

The value drivers below:

Compounded annual revenue growth rate over next 5 years =5.00% Revenue growth rate last year was 60%+.

Target pre-tax operating margin (EBIT as % of sales in year 10) =54.83% Current margin is 34%

Sales to capital ratio (for computing reinvestment) = 2.12 Average for the sector Revenue(Sales)/(CurrentAssets-CurrentLiabilities)

Market numbers

Riskfree rate 3.93% 10 year Aus bond yield http://www.bloomberg.com/markets/rates-bonds/government-bonds/australia/

Initial cost of capital = 11.310% Beta-2 yr adjusted 1.23 Ref Pattersons Market wrap 26Feb

Other inputs

Number of options outstanding = 0.00 Last annual report

Average strike price = $0.00 Last annual report

Average maturity = 0.00 Not available (I am assuming a remaining life of 2 years, since these options were issued as part of 2005 compensation plan)

Standard deviation on stock price = 35.00% Average standard deviation across social media companies that have been listed for the last year.

I will assume that your firm will have a cost of capital similar to that of typical mature companies (riskfree rate + 4.5%)

Do you want to override this assumption = Yes Mature companies generally see their risk levels approach the average

If yes, enter the cost of capital after year 10 = 8% Though some sectors, even in stable growth, may have higher risk (which is my assumption with Groupon)

I will assume that your firm will earn a return on capital equal to its cost of capital after year 10

Do you want to override this assumption = Yes Mature companies find it difficult to generate returns that exceed the cost of capital

If yes, enter the return on capital you expect after year 10 15% But there are significant exceptions among companies with long-lasting competitive advantages (and I am assuming that Groupon is one)

I will assume that your firm has no chance of failure in the next 10 years

Do you want to override this assumption = Yes Many young, growth companies fail, especially if they have trouble raising cash (I am being optimistic and assuming that Groupon has no chance of failure)

If yes, enter the probability of failure in the next 10 years = 20% Tough to estimate but a key input.

I will asssume that you have no NOL coming into the valuation

Do you want to override this assumption = No Check the financial statements.

If yes, enter the NOL that you are carrying over into year 1 $0.00 An NOL will shield your income from taxes, even after you start making money (and Groupon has NOLs)

Some of the cash balance may be trapped overseasDo you want to factor in the additional taxes on that cash? YesHow much cash is trapped overseas (in millions)? $30,000Tax rate on overseas income 15%

Numbers from your base year below:

Default assumptions

Important: Before you run this spreadsheet, go into preferences in Excel and check under Calculation options

There should be a check against the iteration box. If there is not, you will get circular reasoning errors.

Revenue growth rate last year was 60%+.

Revenue(Sales)/(CurrentAssets-CurrentLiabilities)

http://www.bloomberg.com/markets/rates-bonds/government-bonds/australia/

Ref Pattersons Market wrap 26Feb

Not available (I am assuming a remaining life of 2 years, since these options were issued as part of 2005 compensation plan)

Average standard deviation across social media companies that have been listed for the last year.

I will assume that your firm will have a cost of capital similar to that of typical mature companies (riskfree rate + 4.5%)

Mature companies generally see their risk levels approach the average

Though some sectors, even in stable growth, may have higher risk (which is my assumption with Groupon)

Mature companies find it difficult to generate returns that exceed the cost of capital

But there are significant exceptions among companies with long-lasting competitive advantages (and I am assuming that Groupon is one)

Many young, growth companies fail, especially if they have trouble raising cash (I am being optimistic and assuming that Groupon has no chance of failure)

An NOL will shield your income from taxes, even after you start making money (and Groupon has NOLs)

Base year 1 2 3

Revenue growth rate 5.00% 5.00% 5.00%

Revenues ############### ############### ############### ###############

EBIT (Operating) margin 54.83% 49.34% 44.41% 42.19%

EBIT (Operating income) ############### ############### ############### ###############

EBIT(1-t) ############### ############### ############### ###############

- Reinvestment $ 276,500,000.00 $ 290,325,000.00 $ 304,841,250.00

FCFF ############### ############### ###############

NOL $ - $ - $ - $ -

WACC 11.31% 11.31% 11.31%

Discount factor 0.898 0.807 0.725

PV(FCFF) ############### ############### ###############

Terminal cash flow ###############

Terminal Cost of capital 8.00%

Terminal value ############### 26

PV(Terminal value) ############### 101.7

PV (CF over next 10 ############### 91.53

Sum of PV ############### 86.9535

Probability of failure = 20.00%

Value of operating assets ###############

Debt ###############

Cash ###############

Tax on Trapped Cash $ 6,000.00

Value of equity ###############

- Value of options $0.00 Value of equity in

common stock ###############

Number of shares 3,113,798,151.00

Estimated value /share $ 12.73

Price on IPO $ 5.34

Price as % of value 41.93%

Implied variables

Sales to capital ratio 2.12 2.12 2.12

Invested capital $ 17,869,000,000 $ 18,145,500,000 $ 18,435,825,000 $ 18,740,666,250

ROIC 25.23% 23.48% 21.84% 21.43%

4 5 6 7 8 9

5.00% 5.00% 4.79% 4.57% 4.36% 4.14%

############### ############### ############### ############### ############### ###############

42.19% 42.19% 42.19% 42.19% 42.19% 42.19%

############### ############### ############### ############### ############### ###############

############### ############### ############### ############### ############### ###############

$ 320,083,312.50 $ 336,087,478.13 $ 337,788,080.76 $ 338,127,980.55 $ 337,036,960.18 $ 334,453,540.17

############### ############### ############### ############### ############### ###############

$ - $ - $ - $ - $ - $ -

11.31% 11.31% 10.65% 9.99% 9.32% 8.66%

0.651 0.585 0.529 0.481 0.440 0.405

############### ############### ############### ############### ############### ###############

2.12 2.12 2.12 2.12 2.12 2.12

$ 19,060,749,563 $ 19,396,837,041 $ 19,734,625,121 $ 20,072,753,102 $ 20,409,790,062 $ 20,744,243,602

22.12% 22.82% 23.51% 24.17% 24.81% 25.42%

10 Terminal year

3.93% 3.93%

############### ###############

42.19% 42.19%

############### ###############

############### ###############

$ 330,326,073.57 ###############

############### ###############

$ - $ -

8.00% 8.00%

0.375

###############

After year 10

2.12

$ 21,074,569,676

26.00% 15.00%

VALUATION DIAGNOSTICS

Invested capital at start of valuation ##########Invested capital at end of valuation ##########Change in invested capital over 10 years ##########Change in EBIT*(1–t) (after-tax operating income) over 10 years##########Marginal ROIC over 10 years 43.31%ROIC at end of valuation 26.00%Average WACC over the 10 years 10.32%Your calculated value as a percent of current price 238.48%

Value seems high. See below

Inputs

If calculated

value is

negative or

looks too low

Revenue growth rate

Increase

revenue

growth rateLast period EBIT as % of revenue 42%

Last period EBIT as % of revenue needed to earn cost of capital16.74%

Value seems high. See below

If calculated value looks too high

Decrease revenue growth rate

Decrease margin until return in year 10 = cost of capital

Valuing Options or WarrantsEnter the current stock price = 5.34$

Enter the strike price on the option = -$

Enter the expiration of the option = 0.00

Enter the standard deviation in stock prices = 35.00% (volatility)

Enter the annualized dividend yield on stock = 0.00%

Enter the treasury bond rate = 3.93%

Enter the number of warrants (options) outstanding =0.00

Enter the number of shares outstanding = ##########

Do not input any numbers below this line

VALUING WARRANTS WHEN THERE IS DILUTION

Stock Price= 5.34 # Warrants issued= 0

Strike Price= 0 # Shares outstanding= ##########

Adjusted S = #DIV/0! T.Bond rate= 3.93%

Adjusted K = 0 Variance= 0.1225

Expiration (in years) = 0 Annualized dividend yield= 0.00%

Div. Adj. interest rate= 3.93%

d1 = #DIV/0!

N (d1) = #DIV/0!

d2 = #DIV/0!

N (d2) = #DIV/0!

Value per option = #DIV/0!

Value of all options outstanding = #DIV/0!

Industry Name Number of firms Levered Beta Unlevered Beta Std Dev: Equity Market D/E

Advertising 31 2.02 1.75 101.29% 43.26%

Aerospace/Defense 64 1.10 1.03 61.32% 25.66%

Air Transport 36 1.21 1.10 64.80% 24.32%

Apparel 57 1.30 1.22 88.82% 18.38%

Auto Parts 51 1.70 1.59 80.58% 27.65%

Automotive 12 1.59 0.96 68.91% 134.57%

Bank 426 0.77 0.38 61.15% 156.11%

Bank (Midwest) 45 0.93 0.73 55.60% 59.52%

Beverage 34 0.88 0.77 66.05% 26.52%

Biotechnology 158 1.03 1.16 113.11% 13.48%

Building Materials 45 1.50 0.89 78.83% 94.33%

Cable TV 21 1.37 0.98 50.77% 68.06%

Chemical (Basic) 16 1.36 1.24 49.27% 27.35%

Chemical (Diversified) 31 1.51 1.39 56.31% 22.37%

Chemical (Specialty) 70 1.28 1.15 71.60% 21.15%

Coal 20 1.53 1.32 55.52% 28.90%

Computer Software 184 1.04 1.18 82.03% 7.49%

Computers/Peripherals 87 1.30 1.33 97.69% 10.23%

Diversified Co. 107 1.14 0.71 75.00% 102.24%

Drug 279 1.12 1.08 103.44% 15.46%

E-Commerce 57 1.03 1.08 88.13% 6.40%

Educational Services 34 0.83 0.92 78.24% 12.33%

Electric Util. (Central) 21 0.75 0.48 23.37% 86.16%

Electric Utility (East) 21 0.70 0.49 18.30% 66.16%

Electric Utility (West) 14 0.75 0.49 19.85% 84.54%

Electrical Equipment 68 1.33 1.35 67.76% 12.66%

Electronics 139 1.07 1.08 89.93% 22.33%

Engineering & Const 25 1.22 1.39 65.03% 11.99%

Entertainment 77 1.63 1.31 108.37% 40.99%

Entertainment Tech 40 1.23 1.48 76.91% 9.76%

Environmental 82 0.81 0.60 92.14% 43.70%

Financial Svcs. (Div.) 225 1.31 0.50 82.27% 251.49%

Food Processing 112 0.91 0.77 60.68% 29.53%

Foreign Electronics 9 1.09 1.24 35.40% 42.09%

Funeral Services 6 1.14 0.85 39.35% 56.60%

Furn/Home Furnishings 35 1.81 1.65 80.90% 24.39%

Healthcare Information 25 1.17 1.20 65.79% 6.35%

Heavy Truck & Equip 21 1.80 1.48 69.92% 43.66%

Homebuilding 23 1.45 1.02 70.00% 100.28%

Hotel/Gaming 51 1.74 1.28 79.09% 52.07%

Household Products 26 1.07 0.95 62.24% 18.99%

Human Resources 23 1.24 1.40 78.27% 10.31%

Industrial Services 137 0.93 0.81 74.43% 32.71%

Information Services 27 1.07 0.89 48.10% 30.21%

Insurance (Life) 30 1.58 1.54 53.35% 64.14%

Insurance (Prop/Cas.) 49 0.91 1.01 37.88% 23.60%

Internet 186 1.09 1.24 117.09% 2.71%

IT Services 60 1.06 1.14 69.45% 6.09%

Machinery 100 1.20 1.14 57.21% 19.12%

Maritime 52 1.40 0.58 69.19% 170.38%

Med Supp Invasive 83 0.85 0.80 79.18% 16.08%

Med Supp Non-Invasive 146 1.03 1.07 84.89% 13.02%

Medical Services 122 0.91 0.78 76.26% 49.45%

Metal Fabricating 24 1.59 1.63 68.98% 15.49%

Metals & Mining (Div.) 73 1.33 1.28 104.38% 14.10%

Natural Gas (Div.) 29 1.33 1.06 48.77% 37.07%

Natural Gas Utility 22 0.66 0.46 24.90% 67.38%

Newspaper 13 1.76 1.42 90.74% 46.35%

Office Equip/Supplies 24 1.38 1.04 64.26% 63.03%

Oil/Gas Distribution 13 0.96 0.65 56.61% 58.30%

Oilfield Svcs/Equip. 93 1.55 1.39 62.37% 22.92%

Packaging & Container 26 1.16 0.88 41.59% 51.82%

Paper/Forest Products 32 1.36 0.96 93.84% 59.86%

Petroleum (Integrated) 20 1.18 1.12 38.99% 19.19%

Petroleum (Producing) 176 1.34 1.13 88.11% 24.88%

Pharmacy Services 19 1.12 1.00 59.43% 20.48%

Pipeline MLPs 27 0.98 0.72 34.90% 40.97%

Power 93 1.35 0.65 97.19% 148.82%

Precious Metals 84 1.15 1.14 90.87% 8.20%

Precision Instrument 77 1.28 1.33 65.33% 15.94%

Property Management 31 1.13 0.59 82.21% 140.63%

Public/Private Equity 11 2.18 1.62 77.54% 59.87%

Publishing 24 1.25 0.89 64.98% 63.28%

R.E.I.T. 5 1.47 1.15 49.61% 34.71%

Railroad 12 1.44 1.24 42.95% 25.15%

Recreation 56 1.45 1.11 70.55% 48.69%

Reinsurance 13 0.93 1.05 30.40% 23.54%

Restaurant 63 1.27 1.19 68.37% 12.77%

Retail (Hardlines) 75 1.77 1.65 92.79% 24.33%

Retail (Softlines) 47 1.44 1.57 60.91% 5.61%

Retail Automotive 20 1.37 1.12 52.02% 38.11%

Retail Building Supply 8 1.04 0.97 37.61% 14.06%

Retail Store 37 1.29 1.14 67.71% 25.58%

Retail/Wholesale Food 30 0.75 0.64 40.02% 41.34%

Securities Brokerage 28 1.20 0.43 44.31% 430.56%

Semiconductor 141 1.50 1.69 70.52% 8.35%

Semiconductor Equip 12 1.79 2.42 68.70% 15.20%

Shoe 19 1.25 1.38 55.52% 2.18%

Steel 32 1.68 1.40 56.94% 46.40%

Telecom. Equipment 99 1.02 1.28 87.77% 12.96%

Telecom. Services 74 0.98 0.82 68.58% 34.09%

Telecom. Utility 25 0.88 0.54 60.40% 96.15%

Thrift 148 0.71 0.75 53.93% 29.33%

Tobacco 11 0.85 0.78 41.53% 18.71%

Toiletries/Cosmetics 15 1.30 1.20 60.34% 20.64%

Trucking 36 1.24 1.08 59.88% 27.77%

Utility (Foreign) 4 0.96 0.48 32.68% 155.03%

Water Utility 11 0.66 0.43 18.89% 81.42%

Wireless Networking 57 1.27 1.12 75.03% 27.06%

Total Market 5891 1.15 0.92 75.08% 46.64%

Market Debt/CapitalROE ROC Effective Tax RatePre-tax Operating MarginAfter-tax Operating MarginNet Margin Cap Ex/ Depreciation

30.20% 8.89% 10.54% 10.73% 10.27% 7.44% 3.63% 54.18%

20.42% 34.00% 18.53% 20.72% 10.16% 7.31% 6.78% 126.28%

19.56% ###### 16.45% 20.54% 8.78% 6.86% 3.76% 122.22%

15.53% 17.34% 14.02% 16.08% 10.97% 7.60% 6.72% 103.24%

21.66% 22.59% 15.82% 18.99% 6.49% 4.98% 5.10% 96.08%

57.37% 18.46% 6.96% 24.07% 6.99% 4.94% 3.36% 87.04%

60.95% 7.60% NA 15.97% NA NA NA NA

37.31% 9.08% NA 17.77% NA NA NA NA

20.96% 24.58% 12.95% 19.14% 20.45% 15.60% 13.99% 87.24%

11.88% 15.15% -13.33% 2.49% -7.79% -13.73% 9.11% 84.42%

48.54% -5.17% 2.58% 11.17% 4.17% 3.16% -4.01% 48.00%

40.50% 16.13% 8.80% 27.35% 19.58% 12.43% 9.02% 85.32%

21.47% 25.83% 13.66% 20.90% 12.09% 9.56% 12.46% 126.81%

18.28% 19.26% 13.81% 21.73% 13.20% 9.30% 8.79% 104.37%

17.46% 18.50% 12.25% 17.58% 11.10% 7.87% 8.04% 96.78%

22.42% 24.24% 15.26% 12.75% 15.94% 12.53% 12.00% 141.73%

6.97% 79.13% 45.06% 12.27% 31.35% 24.62% 24.78% 64.72%

9.28% 52.52% 32.09% 11.77% 14.15% 10.83% 10.74% 103.58%

50.55% 33.28% 8.01% 15.55% 14.09% 11.76% 9.21% 89.24%

13.39% 22.64% 15.02% 5.36% 21.91% 16.96% 17.99% 37.39%

6.02% 16.47% 13.08% 12.33% 14.39% 10.87% 10.73% 128.44%

10.97% 53.22% 34.34% 25.17% 20.80% 12.91% 11.86% 131.38%

46.28% 10.77% 6.38% 31.82% 17.72% 11.58% 8.89% 158.54%

39.82% 11.91% 6.89% 33.14% 19.13% 12.66% 9.77% 201.07%

45.81% 9.88% 6.11% 31.30% 16.79% 11.38% 8.53% 210.61%

11.24% 23.02% 15.03% 17.02% 13.19% 9.95% 12.12% 86.14%

18.25% 22.20% 15.72% 10.36% 5.99% 4.48% 4.63% 103.97%

10.71% 15.44% 13.58% 26.26% 4.72% 3.35% 3.47% 84.23%

29.07% 11.46% 9.45% 15.38% 17.72% 12.17% 10.12% 79.38%

8.89% 15.08% 11.69% 11.59% 10.48% 9.04% 9.62% 78.89%

30.41% 11.00% 7.56% 11.71% 15.22% 9.48% 7.53% 96.46%

71.55% ###### 5.95% 19.18% 43.49% 33.84% 5.08% 312.33%

22.80% 17.85% 11.88% 20.00% 9.08% 6.52% 5.36% 139.77%

29.62% 6.25% 7.83% 35.12% 5.27% 3.23% 1.83% 73.66%

36.14% 12.34% 7.81% 30.84% 15.64% 9.82% 7.48% 78.63%

19.61% 11.66% 9.50% 20.43% 6.43% 4.58% 3.76% 65.82%

5.97% 11.00% 9.45% 22.19% 12.11% 7.64% 8.81% 58.33%

30.39% 30.24% 10.88% 20.62% 9.13% 6.64% 8.48% 99.81%

50.07% -35.82% -2.09% 5.12% -1.56% -2.09% -5.64% 59.80%

34.24% 5.64% 6.95% 14.53% 12.61% 10.13% 6.29% 109.45%

15.96% 21.80% 14.52% 25.12% 17.38% 12.79% 11.66% 117.15%

9.35% 7.25% 7.67% 25.35% 1.91% 1.18% 1.66% 69.60%

24.65% 13.76% -53.50% 19.03% -21.40% -23.67% 3.26% 127.45%

23.20% 15.60% 10.83% 18.93% 19.33% 15.06% 11.94% 64.40%

39.08% 10.45% NA 28.04% NA NA NA NA

19.10% 13.32% NA 19.36% NA NA NA 9812.35%

2.63% 39.73% 32.75% 6.87% 18.25% 14.58% 16.00% 154.37%

5.74% 36.11% 26.95% 19.15% 14.43% 10.32% 10.59% 76.10%

16.05% 14.59% 12.60% 22.15% 11.05% 8.22% 7.26% 75.32%

63.01% 4.88% 4.76% 5.55% 14.81% 13.69% 0.78% 316.85%

13.85% 22.13% 15.88% 11.86% 22.22% 17.28% 16.64% 84.88%

11.52% 29.56% 19.24% 12.73% 6.48% 4.81% 4.89% 78.77%

33.09% 32.81% 18.55% 19.93% 11.11% 7.39% 4.84% 91.90%

13.41% 18.66% 14.78% 26.55% 15.07% 10.89% 7.84% 154.15%

12.36% 24.79% 19.48% 11.04% 31.57% 21.88% 7.36% 158.10%

27.04% 9.04% 7.10% 21.98% 28.94% 17.50% 12.72% 297.08%

40.26% 10.98% 8.09% 30.16% 12.80% 8.57% 5.10% 184.03%

31.67% 16.73% 11.05% 25.13% 14.59% 9.02% 3.11% 45.60%

38.66% 18.05% 10.36% 21.05% 6.65% 4.59% 4.07% 61.17%

36.83% 11.35% 6.83% 13.70% 18.45% 14.46% 9.80% 280.22%

18.64% 10.48% 8.54% 17.39% 15.11% 11.28% 10.72% 143.22%

34.13% 17.52% 10.40% 24.23% 10.12% 7.02% 13.46% 92.61%

37.45% 8.40% 11.01% 10.61% 12.01% 9.84% 4.63% 54.63%

16.10% 14.76% 10.08% 27.41% 9.76% 5.65% 7.99% 192.87%

19.92% 9.46% 13.50% 11.14% 25.74% 19.10% 10.69% 192.31%

17.00% 14.82% 11.18% 24.67% 5.11% 3.14% 2.91% 99.52%

29.06% 12.71% 8.60% 6.37% 8.95% 8.68% 7.11% 184.61%

59.81% 6.95% 7.56% 8.66% 14.54% 10.88% 1.49% 181.13%

7.57% 9.09% 9.57% 7.51% 33.30% 24.02% 30.24% 203.00%

13.75% 15.37% 12.10% 13.94% 10.74% 8.80% 9.57% 48.46%

58.44% 10.74% 5.18% 18.59% 15.63% 12.95% 9.18% 227.63%

37.45% 35.96% -0.14% 3.79% -2.58% -0.48% 62.30% 554.33%

38.76% 31.94% 11.38% 18.55% 12.10% 8.33% 6.22% 75.65%

25.77% 15.58% 14.07% 1.04% ####### 126.01% 113.55% 89.50%

20.09% 16.43% 11.10% 23.74% 28.43% 18.56% 17.86% 175.52%

32.75% 11.06% 8.26% 17.37% 11.51% 9.26% 7.28% 174.70%

19.06% 13.29% NA 7.22% NA NA NA NA

11.32% 38.25% 20.32% 21.57% 15.82% 11.17% 10.70% 124.28%

19.57% 22.91% 14.99% 23.04% 7.50% 4.99% 3.86% 219.62%

5.32% 36.27% 28.74% 24.64% 9.39% 5.82% 5.56% 96.55%

27.59% 20.53% 9.89% 34.43% 6.88% 4.46% 4.35% 140.44%

12.33% 16.06% 12.18% 31.39% 8.13% 5.13% 5.14% 78.27%

20.37% 21.01% 13.60% 25.02% 5.84% 3.83% 3.45% 129.02%

29.25% 16.43% 10.38% 31.21% 3.18% 2.07% 4.16% 120.58%

81.15% NA 10.39% 26.22% 48.78% 35.58% 11.45% 86.69%

7.70% 39.10% 28.41% 11.01% 22.76% 18.13% 17.82% 108.32%

13.20% 65.76% 40.44% 15.17% 21.65% 18.30% 16.30% 105.87%

2.13% 30.49% 27.41% 24.31% 11.34% 8.22% 8.44% 123.84%

31.69% 7.28% 5.94% 21.03% 5.83% 4.90% 3.52% 66.43%

11.48% 29.93% 23.30% 13.16% 10.87% 8.53% 7.22% 60.98%

25.42% 16.47% 13.70% 14.22% 22.74% 16.56% 5.11% 95.55%

49.02% 18.29% 8.34% 29.42% 15.83% 11.21% 8.50% 76.44%

22.68% -2.14% NA 12.43% NA NA NA NA

15.76% 74.21% 27.98% 31.03% 20.61% 15.24% 8.46% 64.69%

17.11% 62.53% 19.54% 20.30% 10.85% 7.24% 7.37% 114.16%

21.73% 8.19% 9.07% 25.48% 6.37% 4.20% 2.74% 156.92%

60.79% 3.12% 4.56% 26.07% 11.60% 7.81% 0.55% 164.69%

44.88% 8.44% 5.42% 35.22% 26.61% 18.05% 12.25% 250.02%

21.30% 21.34% -18.21% 12.12% -11.47% -15.91% 7.96% 85.53%

31.81% 16.07% 12.21% 15.48% 17.24% 12.62% 8.32% 125.47%

Non-cash WC/ RevenuesPayout Ratio Reinvestment RateSales/Capital EV/Sales Cost of capital

-19.84% 43.75% -46.14% 1.42 1.14 11.42%2.89% 29.13% 14.77% 2.53 0.93 7.30%-9.25% 18.91% 5.54% 2.40 1.78 7.93%17.24% 18.85% 22.13% 1.85 1.19 8.77%5.59% 23.74% 15.16% 3.18 0.59 10.27%

19.37% 22.24% -22.37% 1.41 0.73 6.57%NA 33.53% 0.00% NA NA 4.27%NA 38.36% 0.00% NA NA 5.74%

1.08% 46.35% -2.46% 0.83 3.03 6.35%-5.83% 59.34% NA 0.97 4.49 7.81%7.66% NA -106.83% 0.82 1.22 7.31%-9.65% 18.03% -30.82% 0.71 2.21 7.03%9.68% 30.79% 29.24% 1.43 1.52 8.41%

15.58% 31.68% 47.92% 1.48 1.62 9.48%12.60% 40.43% 12.99% 1.56 1.56 8.46%3.61% 33.78% 37.48% 1.22 1.78 9.26%

-11.16% 21.61% -9.05% 1.83 3.07 7.87%-1.97% 8.61% 1.22% 2.96 1.39 9.21%71.65% 36.81% 1.67% 0.68 2.11 5.98%7.53% 49.12% -28.69% 0.89 2.85 8.22%

-11.60% 1.89% -2.56% 1.20 4.55 7.83%-7.82% 2.83% 8.07% 2.66 1.14 6.47%8.98% 63.88% 56.89% 0.55 2.26 4.19%8.33% 66.22% 82.35% 0.54 2.51 4.29%-0.59% 56.70% 117.43% 0.54 2.19 4.21%12.28% 29.40% 9.17% 1.51 1.54 9.14%10.63% 11.97% 18.61% 3.51 0.47 7.51%3.30% 6.31% -9.01% 4.05 0.46 8.57%1.72% 25.84% -9.30% 0.78 1.89 9.76%

-17.91% 11.57% -25.03% 1.29 1.87 8.79%0.48% 46.73% -0.26% 0.80 2.07 5.99%

11.08% NA 13.38% 0.18 6.67 5.30%8.01% 45.25% 25.88% 1.82 1.08 6.32%1.47% 51.37% -39.15% 2.43 0.37 6.51%3.76% 49.81% -3.51% 0.79 1.86 6.29%

13.45% 27.83% -12.43% 2.08 0.92 10.98%2.00% 12.22% -40.14% 1.24 3.82 8.60%

24.35% 34.22% 94.67% 1.64 1.34 9.82%76.53% NA NA 1.00 1.23 7.14%-2.12% 40.37% -0.79% 0.69 2.58 9.26%4.70% 48.97% 5.97% 1.13 2.21 7.40%4.81% 50.59% 27.53% 6.48 0.29 8.73%

10.25% 24.98% NA 2.26 0.85 6.43%

-1.61% 38.73% -23.97% 0.72 2.94 6.95%NA 29.39% 0.24% NA NA 7.91%NA 23.46% 57.73% NA NA 6.40%

-8.44% 0.66% 4.82% 2.25 3.91 8.37%2.88% 32.87% -4.73% 2.61 1.75 7.96%

16.27% 25.38% 8.44% 1.53 1.37 8.07%3.32% 25.25% 215.04% 0.35 2.69 6.11%

22.14% 22.91% 1.50% 0.92 2.52 6.50%3.04% 37.29% -3.21% 4.00 0.73 7.60%-5.59% 8.82% -25.53% 2.51 0.68 5.97%18.02% 25.70% 32.62% 1.36 1.67 10.32%6.22% 33.51% 23.26% 0.89 2.47 9.31%-4.26% 33.81% 276.48% 0.41 3.37 7.81%5.53% 67.28% 49.96% 0.94 1.45 4.16%-3.13% 14.56% -32.30% 1.23 1.31 9.72%6.78% 28.06% -20.89% 2.26 0.55 7.27%-0.01% 73.98% 124.00% 0.47 3.56 5.92%16.89% 41.88% 70.61% 0.76 2.38 9.66%9.01% 24.38% 108.81% 1.48 1.06 6.58%

10.19% 43.21% -26.89% 1.12 1.06 7.94%1.98% 38.99% 87.67% 1.78 0.87 7.89%2.28% 9.50% 64.09% 0.71 2.20 8.76%3.68% 20.26% 5.55% 3.56 0.53 7.60%0.88% 33.53% 43.79% 0.99 1.97 6.32%

10.94% 13.75% 64.25% 0.69 1.48 6.69%7.21% 26.71% 62.24% 0.40 5.33 8.47%

15.14% 11.24% 2.04% 1.38 1.64 8.71%-3.02% 27.66% 137.37% 0.40 2.85 5.70%31.62% 17.28% NA 0.30 3.43 10.78%0.81% 25.02% -8.51% 1.37 1.15 6.82%

-10.12% 91.36% -1.96% 0.11 14.13 8.70%-1.76% 34.63% 36.17% 0.60 3.44 8.88%-0.96% 42.67% 50.56% 0.89 1.60 8.19%

NA 15.87% 50.50% NA NA 6.55%-4.82% 46.73% 8.36% 1.82 2.50 8.79%8.40% 19.62% 86.40% 3.00 0.83 10.84%3.40% 21.08% 0.99% 4.94 0.87 10.13%

13.56% 2.49% 40.76% 2.22 0.92 7.95%5.88% 47.32% -6.28% 2.37 1.04 7.41%0.88% 29.16% 14.97% 3.55 0.59 8.27%-0.01% 28.62% 23.06% 5.02 0.35 5.10%

123.16% 10.93% -126.66% 0.29 3.08 3.43%6.93% 30.53% 5.83% 1.57 2.06 10.36%

12.51% 11.30% 2.58% 2.21 0.97 11.46%

16.28% 25.89% 19.07% 3.33 1.52 9.28%11.41% 34.26% -6.39% 1.21 0.78 9.06%-3.38% 53.72% -21.25% 2.73 1.25 7.52%

-12.38% 43.63% -5.54% 0.83 1.85 6.65%-7.76% 80.94% -37.32% 0.74 1.75 4.82%

NA NA 0.00% NA NA 5.44%-2.44% 67.56% -4.20% 1.84 2.36 6.23%8.55% 25.04% 13.39% 2.70 1.48 8.53%5.03% 41.07% 94.07% 2.16 1.28 7.89%7.52% 0.32% 132.29% 0.58 1.39 4.30%7.51% 48.16% 107.15% 0.30 4.39 3.91%7.62% 9.13% NA 1.14 1.91 8.23%7.01% 37.92% 8.65% 0.97 1.67 7.05%

Operating Lease ConverterOperating lease expenses are really financial expenses, and should be treated as such. Accounting standards allow them to

be treated as operating expenses. This program will convert commitments to make operating leases into debt and

adjust the operating income accordingly, by adding back the imputed interest expense on this debt.

Inputs

Operating lease expense in current year = 338.00$

Operating Lease Commitments (From footnote to financials)

Year Commitment ! Year 1 is next year, ….

1 338.00$

2 365.00$

3 362.00$

4 345.00$

5 320.00$

6 and beyond 1,302.00$

Pre-tax Cost of Debt = 4.00%

From the current financial statements, enter the following

Reported Operating Income (EBIT) = 10,000.00$ ! This is the EBIT reported in the current income statement

Reported Debt = 25,000.00$ ! This is the interest-bearing debt reported on the balance sheet

Reported Interest Expenses = 2,000.00$

Output

Number of years embedded in yr 6 estimate = 4 ! I use the average lease expense over the first five years

to estimate the number of years of expenses in yr 6

Converting Operating Leases into debt

Year Commitment Present Value

1 338.00$ 325.00$

2 365.00$ 337.46$

3 362.00$ 321.82$

4 345.00$ 294.91$

5 320.00$ 263.02$

6 and beyond 325.50$ 971.13$ ! Commitment beyond year 6 converted into an annuity for ten years

Debt Value of leases = 2,513.34$

Restated Financials

Operating Income with Operating leases reclassified as debt = 10,100.53$

Debt with Operating leases reclassified as debt = 27,513.34$

Operating Lease Converter

adjust the operating income accordingly, by adding back the imputed interest expense on this debt.

! This is the EBIT reported in the current income statement

! This is the interest-bearing debt reported on the balance sheet