Estimating Share Value Using the DCF Model Following are forecasted sales, NOPAT, and NOA for Colgate-Palmolive Company for 2019 through 2022. Forecast Horizon Period Colgate Palmolive (CL) Reported $ millions 2018 2019 2020 2021 2022 Sales $14,456 $14,889 $15,337 $15,796 $16,270 NOPAT 2,545 2,621 2,699 2,780 2,863 NOA 5,428 5,591 5,759 5,932 6,110 Required a. Forecast the terminal period values assuming a 1% terminal period growth for all three model inputs, that is Sales, NOPAT, and NOA. Note: Round your answers to the nearest whole dollar. Sales $Answer NOPAT $Answer NOA $Answer b. Estimate the value of a share of Colgate-Palmolive common stock using the discounted cash flow (DCF) model; assume a discount rate (WACC) of 5.7%, common shares outstanding of 862.9 million, net nonoperating obligations (NNO) of $5,245 million, and noncontrolling interest (NCI) from the balance sheet of $278 million. Stock price per share: $Answer c. Colgate-Palmolive’s stock closed at $62.03 on February 21, 2019, the date the Form 10-K was filed with the SEC. How does your valuation estimate compare with this closing price? Answer d. The forecasts you completed assumed a terminal growth rate of 1%. What if the terminal rate had been 2%. What would your estimated stock price have been? Stock price per share: $Answer
Financial Ratios
A Ratio refers to a figure calculated as a reference to the relationship of two or more numbers and can be expressed as a fraction, proportion, percentage, or the number of times. When the number is determined by taking two accounting numbers derived from the financial statements, it is termed as the accounting ratio.
Return on Equity
The Return on Equity (RoE) is a measure of the profitability of a business concerning the funds by its stockholders/shareholders. ROE is a metric used generally to determine how well the company utilizes its funds provided by the equity shareholders.
Estimating Share Value Using the DCF Model
Following are forecasted sales,
| Colgate Palmolive (CL) | Reported | ||||
|---|---|---|---|---|---|
| $ millions | 2018 | 2019 | 2020 | 2021 | 2022 |
| Sales | $14,456 | $14,889 | $15,337 | $15,796 | $16,270 |
| NOPAT | 2,545 | 2,621 | 2,699 | 2,780 | 2,863 |
| NOA | 5,428 | 5,591 | 5,759 | 5,932 | 6,110 |
Required
a. Forecast the terminal period values assuming a 1% terminal period growth for all three model inputs, that is Sales, NOPAT, and NOA.
Note: Round your answers to the nearest whole dollar.
Sales $Answer
NOPAT $Answer
NOA $Answer
b. Estimate the value of a share of Colgate-Palmolive common stock using the discounted cash flow (DCF) model; assume a discount rate (WACC) of 5.7%, common shares outstanding of 862.9 million, net nonoperating obligations (NNO) of $5,245 million, and noncontrolling interest (NCI) from the
Stock price per share: $Answer
c. Colgate-Palmolive’s stock closed at $62.03 on February 21, 2019, the date the Form 10-K was filed with the SEC. How does your valuation estimate compare with this closing price?
Answer
d. The forecasts you completed assumed a terminal growth rate of 1%. What if the terminal rate had been 2%. What would your estimated stock price have been?
Stock price per share: $Answer
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