Calculate components of fcf making any necessary adjustments

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Reference no: EM133664185

Problem

BMA is manufacturer of wholesale food products. Their sales fluctuate with consumer tastes. Revenue was greater in 2020 as people stayed home during COVID buying more food for their household. Expected Revenue for the next three years are forecast to be $33M, $34M and $35.5M.

A. Calculate the components of FCF, making any necessary adjustments, using the long-form method and forecast their FCF for 2021, 2022 and 2023. Make sure your forecast assumptions are clearly shown.

B. Recalculate your free cash flow forecast for 2021, 2022 and 2023 lowering working capital needs by 15%. For example, if your FCF forecast is based upon WC/Revenue of 20% then you would lower WC/Rev to 17%.

C. Will your revised forecast result in a change in the firm's ROIC? No calculations are necessary. Explain?

D. Independent of question A-C, does a low Free Cash Flow/Invested Capital ratio indicate poor financial performance. Explain.

E. How can one use a firm's free cash flow to assess the "quality of earnings"?

Reference no: EM133664185

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