Description

You are considering an investment into Company XYZ and need to determine the company's value and the appropriate investment amount. You have been provided with historical financial statements for the past three years in order to build a forecast model. Key assumptions to use include: 1. Future sales revenue is assumed to increase at 2.5% annually. 2. Gross margin for 2021E is assumed to be equal to the average gross margin % for 2019 and 2020, but will decrease by 2.5% (i.e. 250 bps) each year thereafter. 3. SG&A expense is assumed to be a percentage of revenue for the forecast period. That percentage is equal to the 2018-2020 average. SG&A Ratio = SG&A / Total Revenue