Question

Sand Technologies: Income Statements for Year Ending December 31           
(in thousands)           2019   2018  
Sales               $945,000   $880,000  
Expenses excluding depreciation and amortization   822,150   730,400  
EBITDA               $122,850   $149,600  
Depreciation and amortization       32,400   31,500  
EBIT               $90,450   $118,100  
Interest Expense           10,470   8,600  
EBT               $79,980   $109,500  
Taxes (40%)               31,992   43,800  
Net income           $47,988   $65,700  
                      
Common dividends           $38,050   $55,390  
Addition to retained earnings       $9,938   $10,310  
                      
Sand Technologies: December 31 Balance Sheets          
(in thousands)                  
Assets               2019   2018  
Cash and cash equivalents       $53,400   $44,685  
Short-term investments           8,500   12,450  
Accounts Receivable           283,500   275,880  
Inventories               141,750   135,000  
Total current assets           $487,150   $468,015  
Net fixed assets           425,600   401,400  
Total assets               $912,750   $869,415  
                      
Liabilities and equity                  
Accounts payable           $94,500   $90,000  
Accruals               46,850   42,750  
Notes payable           32,362   54,565  
Total current liabilities           $173,712   $187,315  
Long-term debt           194,500   147,500  
Total liabilities           $368,212   $334,815  
Common Stock           444,600   444,600  
Retained Earnings           99,938   90,000  
Total common equity           $544,538   $534,600  
Total liabilities and equity           $912,750   $869,415  
                      
Key Input Data                  
Tax rate               40%      

                      
Net operating working capital -- NOWC              
2019   NOWC =    Operating current assets   -   Operating current liabilities      
2019   NOWC =       -         
2019   NOWC =                  
                      
2018   NOWC =    Operating current assets   -   Operating current liabilities      
2018   NOWC =       -         
2018   NOWC =                  
                      
Total net operating capital -- OC              
2019   OC =    NOWC   +   Net Fixed assets      
2019   OC =       +         
2019   OC =                  
                      
2018   OC =    NOWC   +   Net Fixed assets      
2018   OC =       +         
2018   OC =                  
                      
                      
Net operating profit after taxes              
2019   NOPAT =    EBIT   x   ( 1 - Tax rate )      
2019   NOPAT =       x         
2019   NOPAT =                  
                      
Operating Cash Flow (OCF)               
2019   OCF=   NOPAT   +   Depreciation      
2019   OCF=      +         
2019   OCF=                 
                      
Free cash flow                  
2019   FCF =    NOPAT   -   Net investment in operating capital  
2019   FCF =       -         
2019   FCF =                  
                      
Return on invested capital                  
2019   ROIC =    NOPAT   /   Total net operating capital -- 2019 OC  
2019   ROIC =       /         
2019   ROIC =                  
                      
Assume that there were 15 million shares outstanding at the end of the year, the year-end closing stock price was $48.50 per share, and the after-tax cost of capital was 6%. Calculate EVA and MVA for the most recent year.

                      
Additional Input Data                  
Stock price per share   $48.50              
# of shares (in thousands)   15,000              
After-tax cost of capital   6.0%              
                      
Market Value Added                  
MVA =    Stock Price   x   # of shares   -   2019 Total common equity
      x             
              -     
MVA =                      
                      
Economic Value Added                  
EVA =    NOPAT   -   (Operating Capital -- 2019 OC   x   After-tax cost of capital -- WACC)
       -      x     
      -             
EVA =                      

Answer 1

Part A

Net operating working capital = operating current assets – operating current liabilities

Net operating working capital (2019) = 487,150 – 173,712

                                                                          = 313,438

Net operating working capital (2018) = 468,015– 187,315

                                                                         = 280,700

Part B

Total net operating capital = Net operating working capital + Fixed assets

Total net operating capital (2019) = 313,438 + 425,600

                                                                    = 739,038

Total net operating capital (2018) = 280,700+401,400

                                                                    = 682,100

Part C

Investment in total net operating capital = total net operating capital 2019- total net operating capital 2018

                                                                                = 739,038 – 682,100

                                                                                = 56,938

Part D

Net operating profit after taxes = EBIT x (1- t)

                                                                = 90,450x (1-0.40)

                                                                = 54,270

Part E

Free cash flow = NOPAT - Investment in total net operating capital

                                = 54,270 – 56,938

                                = (2,668)

Part F

ROIC = NOPAT/ Net operating assets

                = 54,270 / 739,038

                = 7.34%

Part G-

Stock Price Per Share=$48.50

N.of Shares(in thousands)=15,000

After Cost of Capital=6.0%

Market Value Added=Stock Price*No of shares-Total Common Equity

=48.50*15,000-544,538

=727,500-544,538

MVA =182,962

Economic Value Orderd=NOPAT-(operating Capital*After Tax Cost Of capital)

=54,270-(739,038*6%)

=54,270-44342

EVA =9,928