Question

Following are Cisco Systems’ sales, net operating profit after tax (NOPAT), and net operating assets (NOA) for its year ended July 31, 2016 ($ millions).

Sales				$48,136
Net operating profit after tax (NOPAT)				10,349
Net operating assets (NOA)				25,880

Use the parsimonious method to forecast Cisco’s sales, NOPAT, and NOA for years 2017 through 2020 using the following assumptions.

Sales growth per year						1.0%	for 2017 and
						2.0%	thereafter
Net operating profit margin (NOPM)						21.5%
Net operating asset turnover (NOAT), based on NOA at July 31, 2016						1.86

Rounding instructions:

• Round total revenue "unrounded" to two decimal places.

• Round total revenue "rounded", NOPAT and NOA answers to the nearest whole number.

• For NOPAT and NOA computations, use total revenue "rounded"

Answer 1

SOLUTION:

Net operating profit margin = NOPAT/sales
Net operating profit margin = 10349/48136 = 21%
Net operating assets turnover = sale/net operating assets
net operating assets turnover = 48136/25880 = 1.86
Next year sales = sale of current year*(100%+growth rate%)
Particulars	2017	2018	2019	2020
total revenue (unrounded)	48136*101%	48617.36*102%	49589.7072*102%	50581.501344*102%
	48617.36	49589.7072	50581.501344	51593.13137088
total revenue (rounded)	48617	49590	50582	51593
NOPAT =Total revenue*21.5%	48617*21.5% =10453	49590*21.5% =10662	50582*21.5% =10875	51593*21.5% =11092
NOA= total revenue/1.86	26138.17	26661.29	27194.62	27738.17