Estimate the free cash flow of 2019 under the following assumptions.

Assumptions:

1. Year 2019 sales projection: $31,556,000,000

2. All the other income statement accounts are assumed to hold a constant percentage as sales. The percentage is the average percentage of fiscal years 2016, 2017 and 2018.

3. Investment in net operating working capital and capital expenditure are assumed to stay perpetually as the average of year 2017 and 2018. 

Requirements:

1. Build common size income statements for year 2016, 2017 and 2018.

2. Create a pro forma income statement for year 2019.

3. Create a legend table to calculate the CAPEX and change in NOWC for year 2017 and 2018, and use Assumption 3 to calculate the CAPEX and change in NOWC for year 2019.

4. Forecast annual free cash flow of 3M in 2019.

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A 1 2 3 Sales 4 Cost of Good Sold 5 Gross Profit 6 SG&A Expenses 7 Depreciation Expense 8 Total Operating Expenses 9 Operating Income 10 Interest Expense 11 Other Income/Expenses 12 Income before Taxes 13 Income Taxes 14 Net Income 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 B Income Statement 2016 C 2017 2018 $ 16,389,000,000 $ 17,510,000,000 $ 18,881,000,000 $ (9,383,000,000) $ (10,501,000,000) $ (11,089,000,000) $ 7,006,000,000.00 $ 7,009,000,000.00 $ 7,792,000,000.00 $ (2,197,000,000.00) $ (2,265,000,000.00) $ (2,450,000,000.00) $ (1,738,000,000.00) $ (1,846,000,000.00) $ (2,017,000,000.00) $ (3,935,000,000.00) $ (4,111,000,000.00) $ (4,467,000,000.00) $ 3,071,000,000.00 $ 2,898,000,000.00 $ 3,325,000,000.00 (198,000,000.00) $ (194,000,000.00) $ (223,000,000.00) $ $ (26,000,000.00) $ (43,000,000.00) $ 62,000,000.00 $ 2,822,000,000.00 $ $ (49,000,000.00) $ $ 2,773,000,000.00 $ 2,657,000,000.00 $ 3,193,000,000.00 (60,000,000.00) $ (54,000,000.00) 2,597,000,000.00 $ 3,139,000,000.00 E F Assets: Accounts Receivable Inventory (2 Liabilities: Current Debt Accounts Payable Accrued Liabilities Deferred Revenues G Other Current Assets Total Current Assets Net PPE Good Will Intangible Assets Other Long-term Assets Total Non-current Assets Total Assets Other Current Liabilities Total Current Liabilities Long-term Debt Other Long-term Liabilities Total non-current Liabilities Total Liabilities H Balance Sheet 2016 2017 $ 2018 Ś 298,000,000.00 312,000,000.00 $ 358,000,000.00 $ 322,000,000.00 387,000,000.00 $ 450,000,000.00 $ 1,069,000,000.00 897,000,000.00 $ 1,417,000,000.00 $ 1,689,000,000.00 1,596,000,000.00 $ 2,225,000,000.00 $ 32,429,000,000.00 $34,430,000,000.00 $35,336,000,000.00 $ 2,910,000,000.00 $ 2,967,000,000.00 $ 2,925,000,000.00 $ 1,275,000,000.00 $ 1,200,000,000.00 $ 1,176,000,000.00 $ 633,000,000.00 585,000,000.00 $ 738,000,000.00 $ 37,247,000,000.00 $39,182,000,000.00 $40,175,000,000.00 $ 38,936,000,000.00 $40,778,000,000.00 $42,400,000,000.00 $ 1,097,000,000. 2,202,000,000.00 $ 2,426,000,000.00 $ 713,000,000.00 762,000,000.00 $ 730,000,000.00 $ 1,740,000,000.00 $ 1,877,000,000.00 $ 1,654,000,000.00 $ 3,522,000,000.00 $ 3,958,000,000.00 $4,395,000,000.00 $ $ 1,000,000.00 $ (1,000,000.00) 8,800,000,000.00 $ 9,204,000,000.00 $ 7,072,000,000.00 $ 8,357,000,000.00 $ 6,993,000,000.00 $ 7,897,000,000.00 910,000,000.00 769,000,000.00 $ 857,000,000.00 $ $ 9,267,000,000.00 $ 7,762,000,000.00 $8,754,000,000.00 $ 16,339,000,000.00 $16,562,000,000.00 $17,958,000,000.00 Stockholders' Equity Common Stock $ 365,000,000.00 $ 365,000,000.00 $ 365,000,000.00 Retained Earnings $ 21,843,000,000.00 $23,292,000,000.00 $25,066,000,000.00 Accumulated Other Comprehensive Income $ 389,000,000.00 $ 559,000,000.00 $ (989,000,000.00) Total Stockholders' Equity $ 22,597,000,000.00 $ 24,216,000,000.00 $ 24,442,000,000.00 Total Liabilities and Stockholders' Equity $ 38,936,000,000.00 $40,778,000,000.00 $42,400,000,000.00 A 1 2 3 Sales 4 Cost of Good Sold 5 Gross Profit 6 SG&A Expenses 7 Depreciation Expense 8 Total Operating Expenses 9 Operating Income 10 Interest Expense 11 Other Income/Expenses 12 Income before Taxes 13 Income Taxes 14 Net Income 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 B Income Statement 2016 C 2017 2018 $ 16,389,000,000 $ 17,510,000,000 $ 18,881,000,000 $ (9,383,000,000) $ (10,501,000,000) $ (11,089,000,000) $ 7,006,000,000.00 $ 7,009,000,000.00 $ 7,792,000,000.00 $ (2,197,000,000.00) $ (2,265,000,000.00) $ (2,450,000,000.00) $ (1,738,000,000.00) $ (1,846,000,000.00) $ (2,017,000,000.00) $ (3,935,000,000.00) $ (4,111,000,000.00) $ (4,467,000,000.00) $ 3,071,000,000.00 $ 2,898,000,000.00 $ 3,325,000,000.00 (198,000,000.00) $ (194,000,000.00) $ (223,000,000.00) $ $ (26,000,000.00) $ (43,000,000.00) $ 62,000,000.00 $ 2,822,000,000.00 $ $ (49,000,000.00) $ $ 2,773,000,000.00 $ 2,657,000,000.00 $ 3,193,000,000.00 (60,000,000.00) $ (54,000,000.00) 2,597,000,000.00 $ 3,139,000,000.00 E F Assets: Accounts Receivable Inventory (2 Liabilities: Current Debt Accounts Payable Accrued Liabilities Deferred Revenues G Other Current Assets Total Current Assets Net PPE Good Will Intangible Assets Other Long-term Assets Total Non-current Assets Total Assets Other Current Liabilities Total Current Liabilities Long-term Debt Other Long-term Liabilities Total non-current Liabilities Total Liabilities H Balance Sheet 2016 2017 $ 2018 Ś 298,000,000.00 312,000,000.00 $ 358,000,000.00 $ 322,000,000.00 387,000,000.00 $ 450,000,000.00 $ 1,069,000,000.00 897,000,000.00 $ 1,417,000,000.00 $ 1,689,000,000.00 1,596,000,000.00 $ 2,225,000,000.00 $ 32,429,000,000.00 $34,430,000,000.00 $35,336,000,000.00 $ 2,910,000,000.00 $ 2,967,000,000.00 $ 2,925,000,000.00 $ 1,275,000,000.00 $ 1,200,000,000.00 $ 1,176,000,000.00 $ 633,000,000.00 585,000,000.00 $ 738,000,000.00 $ 37,247,000,000.00 $39,182,000,000.00 $40,175,000,000.00 $ 38,936,000,000.00 $40,778,000,000.00 $42,400,000,000.00 $ 1,097,000,000. 2,202,000,000.00 $ 2,426,000,000.00 $ 713,000,000.00 762,000,000.00 $ 730,000,000.00 $ 1,740,000,000.00 $ 1,877,000,000.00 $ 1,654,000,000.00 $ 3,522,000,000.00 $ 3,958,000,000.00 $4,395,000,000.00 $ $ 1,000,000.00 $ (1,000,000.00) 8,800,000,000.00 $ 9,204,000,000.00 $ 7,072,000,000.00 $ 8,357,000,000.00 $ 6,993,000,000.00 $ 7,897,000,000.00 910,000,000.00 769,000,000.00 $ 857,000,000.00 $ $ 9,267,000,000.00 $ 7,762,000,000.00 $8,754,000,000.00 $ 16,339,000,000.00 $16,562,000,000.00 $17,958,000,000.00 Stockholders' Equity Common Stock $ 365,000,000.00 $ 365,000,000.00 $ 365,000,000.00 Retained Earnings $ 21,843,000,000.00 $23,292,000,000.00 $25,066,000,000.00 Accumulated Other Comprehensive Income $ 389,000,000.00 $ 559,000,000.00 $ (989,000,000.00) Total Stockholders' Equity $ 22,597,000,000.00 $ 24,216,000,000.00 $ 24,442,000,000.00 Total Liabilities and Stockholders' Equity $ 38,936,000,000.00 $40,778,000,000.00 $42,400,000,000.00

Answer rating: 100% (QA)

To estimate the free cash flow of 2019 for a company we need to follow the given assumptions and cal... View the full answer