You have been given the below historical information about Tools Work Inc which is about to go for

an IPO
You are also requested to value the equity using DDM and FCFF methods
Perpetual growth rate after 5 years can be assumed @ 0.72%
Assuming a conservative outlook, evaluate whether an investor should subscribe to the IPO of this company which a

Income Statement: FY16 FY17 FY18

Total Revenue: $14,135.00 $14,484.00 $13,405.00
Cost of Goods Sold (COGS): $8,193.00 $8,411.00 $7,644.00
Gross Profit: $5,942.00 $6,073.00 $5,761.00
Operating Expenses:
(+) Selling, General & Administrative $2,815.00 $2,678.00 $2,417.00
(+) Depreciation $299.00 $262.00 $244.00
(+) Amortization of Intangible Assets $312.00 $242.00 $231.00
(+) Impairment of Goodwill $2.00 $3.00 $2.00
Total Operating Expenses: $3,428.00 $3,185.00 $2,894.00
Operating Income (EBIT): $2,514.00 $2,888.00 $2,867.00
Other Income / (Expense):
(-) Interest Expense: -$239.00 -$250.00 -$226.00
(+) Interest and Other Income: $72.00 $61.00 $78.00
Total Other Income / (Expense): -$167.00 -$189.00 -$148.00
Pre-Tax Income: $2,347.00 $2,699.00 $2,719.00
(-) Provision For Income Taxes: -$717.00 -$809.00 -$820.00
Income from Continuing Operations: $1,630.00 $1,890.00 $1,899.00
(+) Income from Discontinued Operations: $49.00 $1,056.00 $0.00
Net Income: $1,679.00 $2,946.00 $1,899.00
Dividend paid -$528.00 -$711.00 -$742.00

Balance Sheet FY16 FY17 FY18

Assets
Current Assets:
Cash & Equivalents: $3,618.00 $3,990.00 $3,090.00
Accounts Receivable: $2,365.00 $2,293.00 $2,203.00
Inventory: $1,247.00 $1,180.00 $1,086.00
Prepaid Expenses & Other Current Assets: $2,586.00 $401.00 $341.00
Total Current Assets: $9,816.00 $7,864.00 $6,720.00

Non-Current Assets:
Net PP&E: $1,709.00 $1,686.00 $1,577.00
Goodwill: $4,886.00 $4,667.00 $4,439.00
Other Intangible Assets: $1,999.00 $1,799.00 $1,560.00
Other Long-Term Assets: $1,556.00 $1,449.00 $1,433.00
Total Non-Current Assets: $10,150.00 $9,601.00 $9,009.00
Total Assets: $19,966.00 $17,465.00 $15,729.00

Liabilities & Shareholder's Equity

Current Liabilities:
Accounts Payable: $634.00 $512.00 $449.00
Accrued Expenses: $1,272.00 $1,287.00 $1,136.00
Other Current Liabilities: $577.00 $250.00 $257.00
Total Current Liabilities: $2,483.00 $2,049.00 $1,842.00

Non-Current Liabilities:
Long-Term Debt: $6,344.00 $7,419.00 $7,422.00
Deferred Tax Liability: $507.00 $171.00 $256.00
Other Long-Term Liabilities: $923.00 $1,002.00 $981.00
Total Non-Current Liabilities: $7,774.00 $8,592.00 $8,659.00

Total Liabilities: $10,257.00 $10,641.00 $10,501.00

Equity $9,709.00 $6,824.00 $5,228.00
Total Liabilities & Equity: $19,966.00 $17,465.00 $15,729.00
go for an IPO

this company which are about to be listed @ $3.50 per share

Additional Information:
1 Sales growth rate
Year FY19E FY20E FY21E FY22E FY23E
% 5.0% 4.0% 4.0% 3.0% 3.0%

2 Annual Improvement in Gross Margin has been estimated to be 30 basis points

3 SG&A % Revenue:
Year FY19E FY20E FY21E FY22E FY23E
% 18.0% 17.5% 17.5% 17.0% 17.0%

4 Amortisation of Intangible Assets is estimated as follows

Year FY19E FY20E FY21E FY22E FY23E
$217.00 $196.00 $175.00 $153.00 $134.00
5 CAPEX
Year FY19E FY20E FY21E FY22E FY23E
$285.00 $325.00 $375.00 $425.00 $475.00

6 Goodwill is no longer expected to be impaired

7 Current Share Price: $117.46
8 Effective Tax Rate: 30.0%
9 Interest Rate on Debt: 4.0%
10 Interest Rate on Cash: 0.5%
12 The company has announced that they will repay debt $742.2 p.a
13 On an average Prepaid Expenses & Other CA includes 30% Prepaid SG&A Expenses and the balance is O
14 Accrued Expenses are SG&A expenses
15 Other Long term assets & liabilities can be assumed to be constant
16 The company has 200 shares of $10 each
17 Depreciation to be taken on the basis of average historical percentage of Net PPE
18 Use Cash & Equivalents as the plug factor

T-Bill rates Index Data

Year Year Open Year High Year Low Year Close Date Open
2016 0.61% 0.91% 0.81% 0.81% 1-Jan-16 10020.05
2017 0.81% 1.76% 0.73% 0.73% 31-Dec-16 11094.81
2018 1.83% 2.74% 0.63% 0.63% 31-Dec-17 12878.35
31-Dec-18 11343.86
 Comparable Company 1
Date Close/Last Volume Open High Low D/E ratio
1-Jan-16 $91.06 1,895,511 $91.29 $91.42 $89.91 0.5216
31-Dec-16 $122.46 830,406 $122.98 $122.98 $121.85 0.6345
31-Dec-17 $166.85 724,256 $167.46 $167.56 $166.65 0.6987
31-Dec-18 $124.72 1,024,414 $125.79 $150.88 $124.20 0.7356

Comparable Company 2
Date Close/Last Volume Open High Low D/E ratio
1-Jan-16 $85.22 2,252,815 $86.91 $87.09 $85.19 0.9823
31-Dec-16 $132.98 2,796,941 $131.92 $134.82 $131.22 1.0342
31-Dec-17 $146.79 992,781 $146.74 $147.19 $145.64 1.1783
31-Dec-18 $174.45 816,931 $174.43 $175.70 $124.20 1.0743

Comparable Company 3
Date Close/Last Volume Open High Low D/E ratio
1-Jan-16 $99.12 1,705,866 $98.14 $99.25 $98.09 0.0231
31-Dec-16 $127.03 1,873,430 $128.38 $128.58 $126.13 0.1436
31-Dec-17 $142.85 653,890 $142.22 $143.84 $142.07 0.1041
31-Dec-18 $151.50 681,010 $150.26 $151.68 $149.53 0.1829
A Expenses and the balance is Other CA

Index Data
High Low Close Volume
10020.05 9891.07 10001.56 4,304,880,000
11104.09 11034.05 12056.9 2,670,900,000
12886.11 12808.82 14808.84 2,443,490,000
11416.52 11252.23 16306.45 3,702,620,000
 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23
Gp margin 42.98% 43.28% 43.58% 43.88% 44.18% 44.48%
Interest on LT debt

PPE schedule
Depreciation rate 17.50% 15.54% 15.47% 16.17% 16.17% 16.17% 16.17% 16.17%
Openeing NET PPE 1577 1602.82 1659.49 1751.274 1873.326
(+) CAPEX 285 325 375 425 475
(-) Depreciation 259.18 268.34 283.19 302.92 326.87
Closing Net ppe 1602.82 1659.48 1751.30 1873.35 2021.46
0.30%
4%
0.50%
30%
Income Statement: FY16 FY17 FY18 FY19
Total Revenue: $14,135.00 $14,484.00 $13,405.00 $14,075.25
Cost of Goods Sold (COGS): $8,193.00 $8,411.00 $7,644.00 $7,983.97
Gross Profit: $5,942.00 $6,073.00 $5,761.00 $6,091.28
Operating Expenses:
(+) Selling, General & Administrative $2,815.00 $2,678.00 $2,417.00 $ 2,533.55
(+) Depreciation $299.00 $262.00 $244.00
(+) Amortization of Intangible Assets $312.00 $242.00 $231.00
(+) Impairment of Goodwill $2.00 $3.00 $2.00 $0.00
Total Operating Expenses: $3,428.00 $3,185.00 $2,894.00
Operating Income (EBIT): $2,514.00 $2,888.00 $2,867.00
Other Income / (Expense):
(-) Interest Expense: -$239.00 -$250.00 -$226.00 $0.00
(+) Interest and Other Income: $72.00 $61.00 $78.00 $0.00
Total Other Income / (Expense): -$167.00 -$189.00 -$148.00
Pre-Tax Income: $2,347.00 $2,699.00 $2,719.00
(-) Provision For Income Taxes: -$717.00 -$809.00 -$820.00 $0.00
Income from Continuing Operations: $1,630.00 $1,890.00 $1,899.00 $0.00
(+) Income from Discontinued Operations: $49.00 $1,056.00 $0.00 $0.00
Net Income: $1,679.00 $2,946.00 $1,899.00 $0.00
Dividend paid -$528.00 -$711.00 -$742.00 $0.00

Balance Sheet FY16 FY17 FY18

Assets
Current Assets:
Cash & Equivalents: $3,618.00 $3,990.00 $3,090.00
Accounts Receivable: $2,365.00 $2,293.00 $2,203.00
Inventory: $1,247.00 $1,180.00 $1,086.00
Prepaid Expenses & Other Current Assets: $2,586.00 $401.00 $341.00
Total Current Assets: $9,816.00 $7,864.00 $6,720.00

Non-Current Assets:
Net PP&E: $1,709.00 $1,686.00 $1,577.00
Goodwill: $4,886.00 $4,667.00 $4,439.00
Other Intangible Assets: $1,999.00 $1,799.00 $1,560.00
Other Long-Term Assets: $1,556.00 $1,449.00 $1,433.00
Total Non-Current Assets: $10,150.00 $9,601.00 $9,009.00

Total Assets: $19,966.00 $17,465.00 $15,729.00

Liabilities & Shareholder's Equity

Current Liabilities:
Accounts Payable: $634.00 $512.00 $449.00
Accrued Expenses: $1,272.00 $1,287.00 $1,136.00
 Other Current Liabilities: $577.00 $250.00 $257.00
Total Current Liabilities: $2,483.00 $2,049.00 $1,842.00

Non-Current Liabilities:
Long-Term Debt: $6,344.00 $7,419.00 $7,422.00
Deferred Tax Liability: $507.00 $171.00 $256.00
Other Long-Term Liabilities: $923.00 $1,002.00 $981.00
Total Non-Current Liabilities: $7,774.00 $8,592.00 $8,659.00

Total Liabilities: $10,257.00 $10,641.00 $10,501.00

Equity $9,709.00 $6,824.00 $5,228.00
Total Liabilities & Equity: $19,966.00 $17,465.00 $15,729.00
 FY20 FY21 FY22 FY23
$14,638.26 $15,223.79 $15,680.50 $16,150.92
$8,259.42 $8,544.12 $8,753.41 $8,967.56
$6,378.84 $6,679.67 $6,927.10 $7,183.36

$ 2,561.70 $ 2,664.16 $ 2,665.69 $ 2,745.66

$0.00 $0.00 $0.00 $0.00

$0.00 $0.00 $0.00 $0.00

$0.00 $0.00 $0.00 $0.00

$0.00 $0.00 $0.00 $0.00

$0.00 $0.00 $0.00 $0.00
$0.00 $0.00 $0.00 $0.00
$0.00 $0.00 $0.00 $0.00
$0.00 $0.00 $0.00 $0.00