Case Study - Monic Strictly Confidential
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Case Study - Monic 2015 2016 2017
Balance Sheet
Income Statement
Cash Flow Statement
Operations Metrics
Financial Ratios
© Corporate Finance Institute®. All rights reserved.
Case Study - Monic
A. Selling organic B. Selling organic C. Selling organic
Strategic Alternatives cotton pants cotton beanies cotton shoes
Sizes S, M, L One-size Size 5 - 10
Annual production 600 520 300
Expected units of sale 550 360 320
Average product price $55 $30 $76
Revenue $30,250 $10,800 $24,320
Material cost/unit $5.7 $2.4 $6.8
Labor cost/unit $10.2 $5.5 $12.5
Shipping cost/unit $2.8 $1.1 $3.1
Variable cost/unit $18.7 $9.0 $22.4
Total variable cost $10,285 $3,240 $7,168
Inventory storage cost $560 $180 $600
Additional workers 2 1 2
Salaries and benefits $7,000 $3,100 $8,600
Marketing expenses $1,000 $1,000 $1,000
Total fixed cost $8,560 $4,280 $10,200
Operating profit $11,405 $3,280 $6,952
Operating margin 37.7% 30.4% 28.6%
Labor cost ratio 18.5% 18.3% 16.4%
Capex (one-time expense) $10,000 $5,000 $16,000
Product durability (out of 5) 4 3.5 5
© Corporate Finance Institute®. All rights reserved.
Case Study - Monic 2015 2016 2017
Assumptions
EBIT growth (current operation)
EBIT growth (strategic alternatives)
Taxes
Debt financing
Interest expense
Depreciation
Changes in working capital % gorwth (current operation)
Changes in working capital (strategic alternatives)
Capex (current operation)
DCF Valuation (Current Operation)
Free Cash Flow
EBIT 633 8,061 16,275
Less Taxes 0 1,044 2,193
Less Capex 31,012 353 2,855
Plus Depreciation 1,050 1,050 1,903
Less Changes in Working Capital (1,163) 1,374 2,339
Unlevered Free Cash Flow (28,166) 6,340 10,791
DCF Valuation
NPV 85,283 Unle
Cost of Capital 15% (C
Perpetual Growth Rate 2% $60,000
Terminal Value 254,653
NPV of Terminal Value 110,094 $40,000
Total Enterprise Value $195,377
$20,000 10
6,340
$0
($20,000)
(28,166)
($40,000)
2015 2016 2
DCF Valuation (A. Selling Organic Cotton Pants)
Free Cash Flow
EBIT
Less Taxes
Less Capex
Plus Depreciation
Less Changes in Working Capital
Unlevered Free Cash Flow
Total FCF (Current Operation + Alternative A) (28,166) 6,340 10,791
DCF Valuation
NPV 122,767 U
Cost of Capital 15% (A. S
Perpetual Growth Rate 2%
Current O
Terminal Value 396,067
Total
NPV of Terminal Value 171,230
Total Enterprise Value $293,997 $60,000
$40,000
$20,000
6,340
$0
($20,000)
($40,000) (28,166)
2015 2016
DCF Valuation (B. Selling Organic Cotton Beanies)
Free Cash Flow
EBIT
Less Taxes
Less Capex
Plus Depreciation
Less Changes in Working Capital
Unlevered Free Cash Flow
Total FCF (Current Operation + Alternative A) (28,166) 6,340 10,791
DCF Valuation
NPV 97,094
Cost of Capital 15% (B.
Perpetual Growth Rate 2%
Curren
Terminal Value 301,292
Total
NPV of Terminal Value 130,257
Total Enterprise Value $227,351 $60,000
$40,000
$20,000
6,34
$0
($20,000)
($40,000)
(28,166)
2015 2016
($20,000)
($40,000)
(28,166)
2015 2016
DCF Valuation (C. Selling Organic Cotton Shoes)
Free Cash Flow
EBIT
Less Taxes
Less Capex
Plus Depreciation
Less Changes in Working Capital
Unlevered Free Cash Flow
Total FCF (Current Operation + Alternative A) (28,166) 6,340 10,791
DCF Valuation
NPV 101,096
Cost of Capital 15% (C
Perpetual Growth Rate 2%
Terminal Value 344,124 Curre
NPV of Terminal Value 148,774 Total
Total Enterprise Value $249,871 $60,000
$40,000
$20,000
6,34
$0
($20,000)
($40,000) (28,166)
2015 201
2018 2019 2020 2021 2022
20% 20% 20% 20% 20%
- 15% 15% 15% 15%
15% 15% 15% 15% 15%
33,600 37,800 37,800 37,800 37,800
5.0% 5.0% 5.0% 5.0% 5.0%
1,800 1,800 1,800 1,800 1,800
10% 10% 10% 10% 10%
500 550 605 666 732
0 0 0 0 0
19,530 23,436 28,123 33,748 40,497
2,930 3,515 4,218 5,062 6,075
- - - - -
1,800 1,800 1,800 1,800 1,800
2,573 2,830 3,113 3,425 3,767
15,828 18,890 22,592 27,061 32,456
Unlevered Free Cash Flow
(Current Operation)
000
000 32,456
27,061
22,592
15,828 18,890
000 10,791
6,340
$0
000)
(28,166)
000)
2015 2016 2017 2018 2019 2020 2021 2022
11,405 13,116 15,083 17,346 19,947
1,711 1,967 2,262 2,602 2,992
10,000 - - - -
1,800 1,800 1,800 1,800 1,800
500 550 605 666 732
994 12,398 14,016 15,878 18,023
16,822 31,289 36,607 42,939 50,479
Unlevered Free Cash Flow
(A. Selling Organic Cotton Pants)
Current Operation A. Selling Organic Cotton Pants
Total
$60,000 50,479
42,939
36,607
$40,000 31,289
16,822
$20,000 10,791
6,340
$0
($20,000)
($40,000) (28,166)
2015 2016 2017 2018 2019 2020 2021 2022
3,280 3,772 4,338 4,988 5,737
492 566 651 748 861
5,000 - - - -
1,800 1,800 1,800 1,800 1,800
500 550 605 666 732
(912) 4,456 4,882 5,375 5,944
14,916 23,347 27,474 32,436 38,400
Unlevered Free Cash Flow
(B. Selling Organic Cotton Beanies)
Current Operation B. Selling Organic Cotton Beanies
Total
$60,000
38,400
$40,000 32,436
27,474
23,347
$20,000
14,916
10,791
6,340
$0
($20,000)
($40,000)
(28,166)
2015 2016 2017 2018 2019 2020 2021 2022
($20,000)
($40,000)
(28,166)
2015 2016 2017 2018 2019 2020 2021 2022
6,952 7,995 9,194 10,573 12,159
1,043 1,199 1,379 1,586 1,824
16,000 - - - -
1,800 1,800 1,800 1,800 1,800
500 550 605 666 732
(8,791) 8,046 9,010 10,122 11,403
7,037 26,936 31,601 37,183 43,859
Unlevered Free Cash Flow
(C. Selling Organic Cotton Shoes)
Current Operation C. Selling Organic Cotton Shoes
Total
$60,000
43,859
37,183
$40,000 31,601
26,936
$20,000
7,037
10,791
6,340
$0
($20,000)
($40,000) (28,166)
2015 2016 2017 2018 2019 2020 2021 2022
© Corporate Finance Institute®. All rights reserved.
Case Study - Monic
Scenario Analysis Alternative A. Selling organic cotton pants
Forecast Scenarios
Low Case Base Case High Case
Expected units of sale 470 550 630
Average product price $55 $55 $55
Revenue $25,850 $30,250 $34,650
Material cost/unit $5.8 $5.7 $5.6
Labor cost/unit $10.2 $10.2 $10.2
Shipping cost/unit $2.9 $2.8 $2.7
Variable cost/unit $18.9 $18.7 $18.5
Total variable cost $8,883 $10,285 $11,655
Inventory storage cost $600 $560 $540
Additional workers 2 2 2
Salaries and benefits $7,000 $7,000 $7,000
Marketing expenses $1,000 $1,000 $1,000
Total fixed cost $8,600 $8,560 $8,540
Operating profit $8,367 $11,405 $14,455
Operating margin 32.4% 37.7% 41.7%
Capex (one-time expense) $11,900 $10,000 $8,800
© Corporate Finance Institute®. All rights reserved.
Case Study - Monic 2015 2016 2017
Assumptions
EBIT growth (current operation)
EBIT growth (strategic alternatives)
Taxes
Debt financing
Interest expense
Depreciation
Changes in working capital % gorwth (current operation)
Changes in working capital (strategic alternatives)
Capex (current operation)
DCF Valuation (Current Operation)
Free Cash Flow
EBIT 633 8,061 16,275
Less Taxes 0 1,044 2,193
Less Capex 31,012 353 2,855
Plus Depreciation 1,050 1,050 1,903
Less Changes in Working Capital (1,163) 1,374 2,339
Unlevered Free Cash Flow (28,166) 6,340 10,791
DCF Valuation
NPV 85,283 U
Cost of Capital 15%
Perpetual Growth Rate 2%
$60,000
Terminal Value 254,653
NPV of Terminal Value 110,094 $40,000
Total Enterprise Value $195,377
$20,000
6,340
$0
($20,000)
($40,000) (28,166)
2015 2016
DCF Valuation - Alternative A (Base Case)
Free Cash Flow
EBIT
Less Taxes
Less Capex
Plus Depreciation
Less Changes in Working Capital
Unlevered Free Cash Flow
Total FCF (Current Operation + Base Case) (28,166) 6,340 10,791
DCF Valuation
NPV 122,767 Unleve
Cost of Capital 15%
Cur
Perpetual Growth Rate 2%
$60,000
Terminal Value 396,067
NPV of Terminal Value 171,230
$40,000
Total Enterprise Value $293,997
$20,000
6,340
$0
($20,000)
($40,000) (28,166)
2015 2016
DCF Valuation - Alternative A (High Case)
Free Cash Flow
EBIT
Less Taxes
Less Capex
Plus Depreciation
Less Changes in Working Capital
Unlevered Free Cash Flow
Total FCF (Current Operation + High Case) (28,166) 6,340 10,791
DCF Valuation
NPV 135,079 Unlev
Cost of Capital 15%
Cu
Perpetual Growth Rate 2%
$60,000
Terminal Value 431,643
NPV of Terminal Value 186,611
$40,000
Total Enterprise Value $321,691
$20,000
6,340
$0
($20,000)
($40,000) (28,166)
2015 2016
$0
($20,000)
($40,000) (28,166)
2015 2016
DCF Valuation - Alternative A (Low Case)
Free Cash Flow
EBIT
Less Taxes
Less Capex
Plus Depreciation
Less Changes in Working Capital
Unlevered Free Cash Flow
Total FCF (Current Operation + Low Case) (28,166) 6,340 10,791
DCF Valuation
NPV 109,890 Unl
Cost of Capital 15%
Perpetual Growth Rate 2%
Terminal Value 360,630 $60,000
NPV of Terminal Value 155,910
$40,000
Total Enterprise Value $265,800
$20,000
6,34
$0
($20,000)
($40,000) (28,166)
2015 201
2018 2019 2020 2021 2022
20% 20% 20% 20% 20%
- 15% 15% 15% 15%
15% 15% 15% 15% 15%
33,600 37,800 37,800 37,800 37,800
5.0% 5.0% 5.0% 5.0% 5.0%
1,800 1,800 1,800 1,800 1,800
10% 10% 10% 10% 10%
500 550 605 666 732
0 0 0 0 0
19,530 23,436 28,123 33,748 40,497
2,930 3,515 4,218 5,062 6,075
- - - - -
1,800 1,800 1,800 1,800 1,800
2,573 2,830 3,113 3,425 3,767
15,828 18,890 22,592 27,061 32,456
Unlevered Free Cash Flow
(Current Operation)
$60,000
$40,000 32,456
27,061
22,592
15,828 18,890
$20,000 10,791
6,340
$0
$20,000)
$40,000) (28,166)
2015 2016 2017 2018 2019 2020 2021 2022
11,405 13,116 15,083 17,346 19,947
1,711 1,967 2,262 2,602 2,992
10,000 - - - -
1,800 1,800 1,800 1,800 1,800
500 550 605 666 732
994 12,398 14,016 15,878 18,023
16,822 31,289 36,607 42,939 50,479
Unlevered Free Cash Flow (Base Case)
Current Operation Base Case Total
$60,000
50,479
42,939
$40,000
36,607
31,289
16,822
$20,000 10,791
6,340
$0
($20,000)
($40,000) (28,166)
2015 2016 2017 2018 2019 2020 2021 2022
14,455 16,623 19,117 21,984 25,282
2,168 2,493 2,868 3,298 3,792
8,800 - - - -
1,800 1,800 1,800 1,800 1,800
500 550 605 666 732
4,787 15,380 17,444 19,821 22,558
20,614 34,270 40,036 46,882 55,013
Unlevered Free Cash Flow (High Case)
Current Operation High Case Total
$60,000 55,013
46,882
40,036
$40,000 34,270
20,614
$20,000 10,791
6,340
$0
($20,000)
($40,000) (28,166)
2015 2016 2017 2018 2019 2020 2021 2022
$0
($20,000)
($40,000) (28,166)
2015 2016 2017 2018 2019 2020 2021 2022
8,367 9,622 11,065 12,725 14,634
1,255 1,443 1,660 1,909 2,195
11,900 - - - -
1,800 1,800 1,800 1,800 1,800
500 550 605 666 732
(3,488) 9,429 10,601 11,951 13,507
12,340 28,319 33,192 39,012 45,963
Unlevered Free Cash Flow (Low Case)
Current Operation Low Case Total
$60,000
45,963
39,012
$40,000 33,192
28,319
$20,000 12,340
10,791
6,340
$0
($20,000)
($40,000) (28,166)
2015 2016 2017 2018 2019 2020 2021 2022
