Question

	2017	2018	2019
Revenue	1,250.0	1,300.0	1,358.5
COGS	900.0	942.5	982.2
Depreciation	123.0	145.0	155.0
SG&A	177.5	189.8	195.6
R&D	41.3	39.0	42.1
Operating Income	8.3	-16.3	-16.4

1. Given the following historical values (all number are in Millions of US Dollars). Estimate the firm’s 2020 revenue and COGS values. Explain your approach and justify your answer.

Answer 1

For all the three years 2017,2018 and 2019, COGS as a percentage of revenue is 72%.

COS as a percentage of Revenue= [COGS/Revenue]*100

Year	Percentage
2017	[900/1250]*100
2018	[942.5/1300]*100
2019	[982.2/1358.5]*100

So, lets assume that this will continue in 2020

Revenue growth for 2018 is [(1300-1250)/1250]*100=4%

Revenue growth for 2019 is [(1358.5-1300)/1300]*100=4.5%

Average sales growth =[4+4.5]/2=4.25%

Estimated revenue for 2020= 1358.5*104.25%=1416.24

Therefore COGS= 1416.24*72%=1020