Williams Company is a manufacturer of auto parts having the following financial statements for 2019. Balance Sheet December 31, 2019 Cash $ 278,000 Accounts receivable 168,000 Inventory 403,000 Total current assets $ 849,000 Long-lived assets 1,820,000 Total assets $ 2,669,000 Current liabilities 416,000 Long-term debt 900,000 Shareholders' equity 1,353,000 Total debt and equity $ 2,669,000 Income Statement For the year ended December 31, 2019 Sales $ 3,680,000 Cost of sales 2,860,000 Gross margin 820,000 Operating expenses* 518,000 Operating income 302,000 Taxes 105,700 Net income $ 196,300 Cash Flow from Operations For the year ended December 31, 2019 Net income $ 196,300 Plus depreciation expense 150,000 + Decrease (−increase) in accounts receivable and inventory (153,000 ) + Increase (−decrease) in current liabilities 115,000 Cash flow from operations $ 308,300 *Operating expenses include depreciation expense. Additional financial information, including industry averages for 2019, where appropriate, includes: Industry Capital expenditures $ 165,000 Income tax rate 35 % 35.0 % Depreciation expense $ 150,000 Dividends $ 32,000 Year-end stock price $ 4.05 25.00 Number of outstanding shares 1,980,000 Sales multiplier 1.50 Free cash flow multiplier 18.00 Earnings multiplier 9.00 Cost of capital 5 % Accounts receivable turnover 11.10 Inventory turnover 10.50 Current ratio 2.30 Quick ratio 1.90 Cash flow from operations ratio 1.20 Free cash flow ratio 1.10 Gross margin percentage 30.0 % Return on assets (net book value) 20.0 % Return on equity 30.0 % Required: Develop a business valuation for Williams Company for 2019 using the following methods: (1) book value of equity, (2) market value of equity, (3) discounted cash flow (DCF), (4) enterprise value, and (5) all the multiples-based valuations for which there is an industry average multiplier. For the calculation of the DCF valuation, you may use the simplifying assumption that free cash flows will continue indefinitely at the amount in 2019.
Williams Company is a manufacturer of auto parts having the following financial statements for 2019.
December 31, 2019 | |||
Cash | $ | 278,000 | |
Accounts receivable | 168,000 | ||
Inventory | 403,000 | ||
Total current assets | $ | 849,000 | |
Long-lived assets | 1,820,000 | ||
Total assets | $ | 2,669,000 | |
Current liabilities | 416,000 | ||
Long-term debt | 900,000 | ||
Shareholders' equity | 1,353,000 | ||
Total debt and equity | $ | 2,669,000 | |
Income Statement | |||
For the year ended December 31, 2019 | |||
Sales | $ | 3,680,000 | |
Cost of sales | 2,860,000 | ||
Gross margin | 820,000 | ||
Operating expenses* | 518,000 | ||
Operating income | 302,000 | ||
Taxes | 105,700 | ||
Net income | $ | 196,300 | |
Cash Flow from Operations | |||
For the year ended December 31, 2019 | |||
Net income | $ | 196,300 | |
Plus |
150,000 | ||
+ Decrease (−increase) in accounts receivable and inventory | (153,000 | ) | |
+ Increase (−decrease) in current liabilities | 115,000 | ||
Cash flow from operations | $ | 308,300 | |
*Operating expenses include depreciation expense.
Additional financial information, including industry averages for 2019, where appropriate, includes:
Industry | |||||
Capital expenditures | $ | 165,000 | |||
Income tax rate | 35 | % | 35.0 | % | |
Depreciation expense | $ | 150,000 | |||
Dividends | $ | 32,000 | |||
Year-end stock price | $ | 4.05 | 25.00 | ||
Number of outstanding shares | 1,980,000 | ||||
Sales multiplier | 1.50 | ||||
18.00 | |||||
Earnings multiplier | 9.00 | ||||
Cost of capital | 5 | % | |||
Accounts receivable turnover | 11.10 | ||||
Inventory turnover | 10.50 | ||||
Current ratio | 2.30 | ||||
Quick ratio | 1.90 | ||||
Cash flow from operations ratio | 1.20 | ||||
Free cash flow ratio | 1.10 | ||||
Gross margin percentage | 30.0 | % | |||
20.0 | % | ||||
30.0 | % | ||||
Required:
Develop a business valuation for Williams Company for 2019 using the following methods: (1) book value of equity, (2) market value of equity, (3) discounted cash flow (DCF), (4) enterprise value, and (5) all the multiples-based valuations for which there is an industry average multiplier. For the calculation of the DCF valuation, you may use the simplifying assumption that free cash flows will continue indefinitely at the amount in 2019.
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