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Projecting NOPAT and NOA Using Parsimonious Forecasting Method

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				$49,247
Net operating profit after tax (NOPAT)				10,575
Net operating assets (NOA)				26,472

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".

$ millions			2017 Est	2018 Est.	2019 Est.	2020 Est.
Total revenue (unrounded)			$Answer	$Answer	$Answer	$Answer
Total revenue (rounded)			Answer	Answer	Answer	Answer
NOPAT			Answer	Answer	Answer	Answer
NOA			Answer	Answer	Answer	Answer

Answer 1

Solution:

As per parsimonious method to forecast, forumulas to be used are:

Sales= Previous year sales*(1+growthrate/100)

NOPAT= Current year sales*(NOPM/100)

NOA= Current year sales/NOAT

$Milliion	2017	2018	2019	2020
Total revenue (unrounded)	49739.47	50734.26	51748.94	52783.92
Total revenue (rounded)	49739	50734	51749	52784
NOPAT	10694	10908	11126	11349
NOA	26741	27276	27822	28378

Note: All the amount are in $ Millions

To calculate NOPAT and NOA, rounded figure of current year sales has been taken