Financial Modeling Module I

Fall 2010

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About The Kadmos Initiative Pvt Ltd.

Isfandiyar Shaheen (Asfi) Instructor

Isfandiyar Shaheen (Asfi) is the founder and Chief Executive Officer of The Kadmos Initiative Pvt Ltd. Prior to establishing
TKI, Asfi was an investment banker at Seabury Aviation & Aerospace. At Seabury, Asfi has participated in M&A advisory,
financial restructuring and privatization assignments. Asfi has extensive experience with financial modeling, valuation and
business plan implementation. Prior to joining Seabury, Asfi was an Analyst at Analysis Group, where his primary
responsibilities included developing valuation models for commercial litigation cases.

Asfi graduated from Franklin and Marshall College (cum laude) with degrees in Economics (Honors) and Mathematics and is
Series 7 & 63 qualified.

Seabury Aviation & Aerospace is the leading independent transportation-focused investment banking and advisory firm
serving aviation, aerospace, cargo and maritime on a global basis. The company's professionals have advised over 225
clients worldwide in the airline, aerospace, cargo/logistics and maritime sectors.

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Table of Contents

1. Overview of Financial Modeling

2. Excel Best Practices
3. Kadmos Modeling Framework
4. Thebes Airport: Situation Overview
5. Income Statement and Operating Model
6. Capital Expenditures and D&A Schedules
7. Debt and Interest Schedules
8. Tax Schedule
9. Financial Model Set Up
10. Working Capital Schedule
11. Shareholders Equity Schedule
12. Linking Financial Statements
13. Introduction to Valuation and Preliminary Returns Analysis
14. Control Page and Sensitivity Analysis

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What is a Financial Model?

Simplified representation of historical and projected financial performance

Management tool that allows a comprehensive evaluation of the impact a

variable can have on a business

Marketing tool businesses and entrepreneurs can use for raising capital and
M&A purposes

Negotiating tool for businesses in financial distress to seek concessions from

creditors

Valuation and due diligence tool for investors

Projection tool used by equity research analysts for forecasting earnings

estimates

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Modeling Goals

Virtual re-creation of the actual business

Ability to test assumptions to analyze historical and projected financial

performance
- Growth Rates
- Operating Margins
- Accounting Regulations
- Taxation
- Capital Infusion and/or Divestitures

Understanding the models purpose and possible implications are critical as they
determine design and functionality

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Modeling Assumptions

Assumptions should be clear and well defined

- Also referred to as drivers or inputs

Model integrity based on assumptions

- Over simplified and unreasonable assumptions result in meaningless figures

Outlining proper, reasonably accurate assumptions requires a thorough

understanding of the business, industry and the prevailing financing environment
- Equity research reports are often a good starting point
- History serves as a useful guide, except for start-ups, companies with significant
acquisitions/divestitures or in highly volatile markets
- There is no substitute for a deep understanding of the business and how it would be
affected by changes in its operating environment

Assumptions must be reasonable and defensible

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Model Architecture

An effective and efficient model must be realistic, flexible and easy to follow

- Unrealistic assumptions result in misleading and often meaningless output

- Economic and financial environment is constantly changing, therefore a model must

be able to quickly accommodate exogenous and endogenous factors

- Well formatted and easy to follow models ensure quality control

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Table of Contents

1. Overview of Financial Modeling

2. Excel Best Practices
3. Kadmos Modeling Framework
4. Thebes Airport: Situation Overview
5. Income Statement and Operating Model
6. Capital Expenditures and D&A Schedules
7. Debt and Interest Schedules
8. Tax Schedule
9. Financial Model Set Up
10. Working Capital Schedule
11. Shareholders Equity Schedule
12. Linking Financial Statements
13. Introduction to Valuation and Preliminary Returns Analysis
14. Control Page and Sensitivity Analysis

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Spreadsheet Set Up

Start working on a spreadsheet by assigning names to tabs

- This can be done by double clicking on an Excel tab or using Alt, O, H, R

The first 4-5 rows on a given tab should include additional description of the tab
along with author name
- A key detailing color codes is very useful

Time periods typically appear along the horizontal and corresponding line items
along the vertical axis

Indent cells to the extreme left to navigate quickly between sections on a given
tab using Ctrl + Arrow Keys

Use different color shading codes for historical and projected financial
statements

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Spreadsheet Set Up Example

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Excel Best Practices

1.Use a consistent color coding scheme and define it on each tab, a suggested
color scheme is as follows:
- BLACK = Calculations and references on the same sheet
- BLUE = Inputs (historical financials and assumptions)
- GREEN = Reference from a different sheet
- RED = Warning to others (always inset a comment (Alt + I, M) to explain further)
2.Avoid linking cells to a different sheet
3.Dont embed inputs in formulas, instead break out into separate line items

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Excel Best Practices

4.Never input the same number twice, let Excel flow and be dynamic
5.Always enter exact figures and use Excel to round up according to format
6.Do not hide rows, group if necessary

- To group rows, first select an entire row (Shift + Space bar), hold shift and use
arrow key to select additional rows, then group (Alt + Shift + Right Arrow)

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Excel Best Practices

7.Use Page Setup (Alt, F U) to set up your first sheet and use that sheet as a
template for the remaining work book by copying a duplicate sheet (Alt, E M) in
the same work book
8.Never merge cells, always use Center Across Selection instead
Select cells using Shift + Arrow key, then hit Ctrl + 1. Under Alignment go to the drop down
menu under Horizontal and chose Center Across Selection. Ensure that the Merge Cells
check box is unchecked
9.Always use keyboard shortcuts, to navigate shortcuts, hit Alt once and access
remaining drop down menus by striking keys which are underlined on the tool
bar
For e.g. to change column width, hit Alt, then O to access the Format drop down menu, then C
to access the Column menu and finally W to change column width or simply Alt, O, C, W

10.Customize your tool bar in a manner which suits you

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Commonly Used Shortcut Keys

Excel work books must be consistent, efficient and clear

Common keyboard shortcuts in MS Excel are as follows:

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Commonly Used Functions

Commonly used functions are as follows:

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Importance of Formatting

Analytical work and good presentation are equally important

Your work represents you (and your firm)

Sloppy, inconsistent work may give the wrong impression about work quality

The numbers may be 100% accurate, yet it may not be enough to secure a deal

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Customizing Number Formats

Customizing number formats allows for more creative and easier formatting,
while ensuring optimum functionality
- E.g. Assuming numbers are written in $ format ($233,443) to make this appear as
(Rs. 233,443), do the following

Chose the cell and hit Ctrl + 1

Under the Number menu, click on

Custom and replace $ signs with
Rs (ensure you are using quotation
marks in this case), and hit OK

It is always advisable to modify pre-programmed formats instead of re-writing a

Custom format, as described above

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Conditional Formatting

Use conditional formatting, especially to highlight a situation where the Company in

question is running out of cash (the model will indicate this by showing a negative
cash balance
- To conditionally format a row or column, chose the desired cells (Shift + Arrow Key) and
then hit (Alt, O D)

- Use the conditional formatting menu to turn the font red in case of a negative number

- `

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Table of Contents

1. Overview of Financial Modeling

2. Excel Best Practices
3. Kadmos Modeling Framework
4. Thebes Airport: Situation Overview
5. Income Statement and Operating Model
6. Capital Expenditures and D&A Schedules
7. Debt and Interest Schedules
8. Tax Schedule
9. Financial Model Set Up
10. Working Capital Schedule
11. Shareholders Equity Schedule
12. Linking Financial Statements
13. Introduction to Valuation and Preliminary Returns Analysis
14. Control Page and Sensitivity Analysis

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Core Statements Income Statement

A basic financial model requires the construction of 3 core statements; Income

Statement, Balance Sheet and Cash Flow Statement
Always begin work on a financial model with the Income Statement, and think
clearly about the drivers required to complete Income Statement projections
Income Statement items above EBITDA are projected using various
methodologies, details of which will be discussed further in the next section

Income Statement Historical Financials Projected Financials

(Pak Rupees in 000s, except per share amounts) 2006 2007 2008 2009 2010 2011 2012
Revenue Projections may be developed using historical figures and research reports
Cost of Goods Sold Management typically provides guidance on expected COGS
Gross Profit (Revenue - Cost of Goods Sold)

SG&A Expense Management typically has a budget which details SG&A Expenses
EBITDA (Gross Profit - SG&A Expenses)

Depreciation & Amortization Requires Cap Ex and D&A Schedule

EBIT (EBITDA - Depreciation & Amortization)

Interest Expense Requires Debt & Interest Schedule

Interest Income Calculated based on prevailing interest rates and average cash balances
EBT (EBIT - Interest Expense + Interest Income)

Taxes @ 35.0% Tax Schedule depending on jurisdiction and Company situation required
Net Income (Pre-tax Income - Taxes)

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Core Statements Balance Sheet

Once the Income Statement is developed, next steps are projecting the Balance
Sheet and preparing a corresponding Cash Flow Statement
- It is advisable to project the Balance Sheet first, however some practitioners prefer
projecting the Cash Flow Statement and then preparing the corresponding BS
Balance Sheet Historical Financials Projected Financials
(Pak Rupees in 000s, except per share amounts) 2006 2007 2008 2009 2010 2011 2012
Assets
Cash and Equivalents Previous year's cash balance + change in cash, which comes from CF Statement
Accounts Receivable Requires Working Capital Schedule
Inventory Requires Working Capital Schedule
Other Current Assets Requires Working Capital Schedule
Total Current Assets (Cash and Equivalents + Accounts Receivable + Inventory + Other Current Assets)

Gross PP&E Existing PP&E + related capital expenditures; Requires CapEx and D&A Schedule
Other Non Current Assets Existing Other Non Current Assets + related capital expenditures; Requires CapEx and D&A Schedule
Accumulated Depreciation Existing Accumulated Depreciation + book depreciation; Requires CapEx and D&A Schedule
Total Assets (Total Current Assets + Gross PP&E + Other Non Current Assets - Accumulated Depreciation)

Liabilities and Shareholders' Equity

Accounts Payable Requires Working Capital Schedule
Accrued Expenses and Other Current Liabilities Requires Working Capital Schedule
Total Current Liabilities (Accounts Payable + Accrued Expenses and Other Current Liabilities)

Secured Debt Requires Debt and Interest Schedule

Unsecured Debt Requires Debt and Interest Schedule
Total Debt (Secured Debt + Unsecured Debt)

Other Non Current Liabilities Requires schedules detailing unwinding of liabilities OR line item may be projected within the Working Capital Schedule
Total Liabilities (Total Current Liabilities + Total Debt + Other Non Current Liabilities)

Shareholders' Equity
Authorized Capital of XXX,XXX,XXX common shares Note: Authorized Capital is not added in the Shareholder's Equity section of the balance sheet
of Rs. XX each
Common stock issued at par Par value of issued shares
Additional paid-in capital Capital paid by investors in excess of par value of common stock
Accumulated earnings (deficit) Previous year's balance + Net Income - Dividends Paid
Total Shareholder's Equity (Common stock + APIC + Accumulated Earnings)

Total Liabilities & Shareholder's Equity (Total Liabilities + Total Shareholder's Equity)

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Core Statements Cash Flow Statement

The Balance Sheet requires a resulting component for it to balance Cash!

The Cash Flow statement is thus projected using the Balance Sheet, with cash
being the variable that balances a Balance Sheet
Cash Flow Statement Historical Financials Projected Financials
(Pak Rupees in 000s, except per share amounts) 2006 2007 2008 2009 2010 2011 2012
Cash Flow from Operations
Net Income From Income Statement
(+) Depreciation & Amortization From Income Statement (D&A is a non cash item)
(Increase)/Decrease in Accounts Receivable For 2009: AR in 2008 - AR in 2009
(Increase)/Decrease in Inventory For 2009: Inventory in 2008 - Inventory in 2009
(Increase)/Decrease in Other Current Assets For 2009: Other Current Assets in 2008 - Other Current Assets in 2009
Increase/(Decrease) in Accounts Payable For 2009: AP in 2009 - AP in 2008
Increase/(Decrease) in Accr. Exp and Other CL For 2009: Accr. Exp & Other CL in 2009 - Accr. Exp & Other CL in 2008
Increase/(Decrease) in Accrued Exp. And Other Non CL For 2009: Accr. Exp & Other Non CL in 2009 - Accr. Exp & Other Non CL in 2008
Total Cash Flow from Operating Activities (SUM all items above); Be careful with signs for working capital changes

Cash Flow from Investing Activities

(-) Capital Expenditures Management typically provides guidance on CapEx; often CapEx = D&A is assumed
(+) Asset Sales Management typically provides guidance on Asset Sales
(-) Acquisition of Assets / Other Securities Management typically provides guidance on Acquisition of Assets
Total Cash Flow from Investing Activities (Asset Sales - CapEx - Acquisition of Assets)

Cash Flow from Financing

(+) Issuance of Common Stock Management typically provides guidance
(+) Proceeds from Secured Debt Requires Debt & Interest Schedule
(+) Proceeds from Unsecured Debt Requires Debt & Interest Schedule
(+) Proceeds from Equity Raise from Foreign Investor Requires Shareholder's Equity Schedule
(-) Dividends Paid Requires Shareholder's Equity Schedule
(-) Payment of Secured Debt Requires Debt & Interest Schedule
(-) Payment of Unsecured Debt Requires Debt & Interest Schedule
Total Cash Flow from Financing Activities (SUM all items above); Be careful with signs for debt payments and debt proceeds

Change in Cash Balance (Cash flow from Operation + Investing + Financing)

Change in cash is linked back to the balance sheet, and that is how a balance sheet is balanced!

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Kadmos Modeling Framework

1.Construct the Income Statement, all items above EBITDA are projected using
various methods which will be discussed further in the next section
2.The following schedules are required to complete the Income Statement
Cap Ex and D&A Schedule
Debt and Interest Schedule
Tax Schedule
3.Upon completion of Income Statement, prepare the following schedules to
project the Balance Sheet, in the following order:
Working Capital Schedule
Shareholders Equity Schedule
4.After Step 3 only Cash and Equivalents on the Balance Sheet will remain
unfilled, use the Cash Flow Statement to populate projected Cash and
Equivalents, and simultaneously complete both Balance Sheet and Cash Flow
Statement
5.Incorporate a circular reference to calculate Interest Income in the Income
Statement based on Cash and Equivalents on Balance Sheet

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Table of Contents

1. Overview of Financial Modeling

2. Excel Best Practices
3. Kadmos Modeling Framework
4. Thebes Airport: Situation Overview
5. Income Statement and Operating Model
6. Capital Expenditures and D&A Schedules
7. Debt and Interest Schedules
8. Tax Schedule
9. Financial Model Set Up
10. Working Capital Schedule
11. Shareholders Equity Schedule
12. Linking Financial Statements
13. Introduction to Valuation and Preliminary Returns Analysis
14. Control Page and Sensitivity Analysis

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Thebes Airport: Overview

Thebes Airport (Company or Thebes) is located in Asia and is majority owned

by Frontier Capital Corporation

The Company has a market capitalization of Rs. 261 MM as of 05/04/2009 and

revenue of approximately Rs. 75 MM

Due to an Open Skies treaty between Thebes and neighboring countries, the
airport is poised to grow significantly over the next 5 years

To facilitate expansion, the airports management is expecting a significant

increase in Capital Expenditures which can not be financed by existing cash
balances

Management has circulated a Request for Proposal to potential investors for an

equity investment

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Thebes Airport: Financial Statements

Thebes Airport was established in 1995, presented below are its Income
Statement and Balance Sheet

Income Statement Historical Financials Balance Sheet Historical Financials

(Pak Rupees in 000s, except per share amounts) 2006 2007 2008 (Pak Rupees in 000s, except per share amounts) 2006 2007 2008
Revenue Assets
Landing Fees 4,188 4,603 4,990 Cash and Equivalents 10,430 14,028 19,970
Handling Fees 21,670 25,179 28,318 Accounts Receivable 13,000 13,910 14,884
Embarkation Fees 14,910 17,003 18,663 Inventory 5,000 5,400 5,500
Total Operating Revenue 40,769 46,785 51,971 Other Current Assets 9,105 10,016 11,017
Total Current Assets 37,535 43,353 51,370
Non Operating Revenue
Airport Development Fund 9,564 11,478 12,389 Gross PP&E 500,000 520,000 540,800
Flying Club 2,000 2,000 2,000 Other Non Current Assets 25,889 26,666 27,466
Rental Income 5,600 6,735 8,353 Accumulated Depreciation (167,654) (190,054) (213,406)
Total Revenue Rs.57,933 Rs.66,998 Rs.74,713 Total Assets Rs.395,770 Rs.399,965 Rs.406,230

Operating Costs Liabilities and Shareholders' Equity

Staff salaries (9,044) (9,768) (10,549) Accounts Payable 2,476 2,426 2,378
Maintenance (8,403) (8,874) (9,282) Accrued Expenses and Other Current Liabilities 2,467 2,418 2,369
Marketing & Advertising (8,843) (9,506) (10,267) Total Current Liabilities 4,943 4,844 4,747
Other Operating Costs (1,200) (1,380) (1,587)
EBITDA 30,442 37,470 43,028 Secured Debt 24,000 22,000 20,000
Unsecured Debt 10,000 9,000 8,000
Total Debt 34,000 31,000 28,000
Depreciation & Amortization (21,400) (22,400) (23,352)
EBIT 9,042 15,070 19,676 Other Non Current Liabilities 10,123 9,921 9,722
Total Liabilities 49,066 45,765 42,469

Interest Expense (3,190) (3,085) (3,020) Shareholders' Equity

Interest Income 939 939 939 Authorized Capital of 200,000,000 common shares
EBT 6,791 12,924 17,595 of Rs. 1 each
Common stock issued at par 100,000 100,300 100,601
Additional paid-in capital 234,987 235,692 236,399
Taxes @ 35% (2,377) (4,523) (6,158) Common stock issued at par to SAS
Net Income Rs.4,414 Rs.8,400 Rs.11,437 Additional paid-in capital by SAS
Net Income Margin 7.6% 12.5% 15.3% Accumulated earnings (deficit) 11,717 18,208 26,761
Total Shareholder's Equity 346,704 354,200 363,761

Total Liabilities & Shareholder's Equity Rs.395,770 Rs.399,965 Rs.406,230

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Thebes Airport: Capital Structure

Thebes Airport is a publicly listed company and is majority owned by Frontier

Capital Corporation

Valuation as of 05/04/2009
Common shares Outstanding as of 12/31/2008 100,601 Market Capitalization =
Stock Price as of 05/04/2009 Rs. 2.6 Stock Price X Common Shares Outstanding
Market Capitalization Rs. 261,562

(+) Total Debt 28,000 Enterprise Value =

Market Capitalization + Total Debt - Cash
(-) Cash and Equivalents 19,970
Enterprise Value Rs. 269,593

FY 2008 Revenue Rs. 74,713

FY 2008 EBITDA 43,028
FY 2008 Net Income 11,437

Enterprise Value / Revenue 3.6x

Enterprise Value / EBITDA 6.3x
Price / Earnings 22.9x

Capital Structure as of 05/04/2009

Shareholders % of Total Common shares held
Frontier Capital Corporation 55% 55,345
Shareef Brothers Limited 17% 16,893
Establishment Foundation 15% 15,456
Publicly Traded 13% 12,907
Total Common Shares Outstanding 100% 100,601

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SAS Capital Partners: Situation Overview

SAS Capital Partners is a Rs. 500 Mn investment fund and has retained us as
Buy-Side advisor to make an investment in Thebes Airport

SAS typically makes minority investments in infrastructure assets in the

MENASA region and has a target IRR of 20%

Investment holding period for SAS is 4-6 years

SAS is interested in acquiring a minority stake in Thebes Airport and requires

assistance from us in preparing a financial model as well as performing a
preliminary returns analysis

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Table of Contents

1. Overview of Financial Modeling

2. Excel Best Practices
3. Kadmos Modeling Framework
4. Thebes Airport: Situation Overview
5. Income Statement and Operating Model
6. Capital Expenditures and D&A Schedules
7. Debt and Interest Schedules
8. Tax Schedule
9. Financial Model Set Up
10. Working Capital Schedule
11. Shareholders Equity Schedule
12. Linking Financial Statements
13. Introduction to Valuation and Preliminary Returns Analysis
14. Control Page and Sensitivity Analysis

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What is an Operating Model?

Development of core revenue and cost drivers which describe a business

A due diligence tool for investors seeking to establish viability of a business

The building blocks of Income Statement items above the EBITDA line

A good operating model is one which can explain very clearly how and why a
business generates revenue

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Revenue Projections

At the most basic level Revenue = Price X Volume, which can be further broken
down into components

Assuming an arbitrary growth rate for revenue based on historical growth and
other economic indicators results in projections which are not defensible

To understand how and why a business will generate revenue, it is essential to

ask the right questions, the following are a few examples:

- What were the Companys revenues for the past 3-5 years?
- What is the growth rate for the industry or major competitors?
- What is the competitive positioning of the Company? Is it poised to steal market
share and outpace industry due to differentiating factors that are sustainable?
- What are the pricing trends in the industry? When evaluating pricing trends it is
critical to identify the customers in the relevant market segment. E.g. Swatch and
Rolex are both watch makers, but fall in entirely different market segments

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Airport Economics: Revenue Forecasting

A revenue forecast developed using a bottom-up approach is more useful as

compared to making high level and relatively arbitrary assumptions

However, it is essential to pick a starting point when developing projections

otherwise one can easily get lost in the details:

- To project revenue for an airport one requires a traffic forecast

- Traffic forecast is dependent on the number of aircraft orders placed with OEMs
and also regulatory issues
- Aircraft orders are dependent on the global economy, health of financial markets
and the airline industry

Forecasting aircraft orders would typically be beyond the scope of a financial

modeling exercise in an M&A transaction or even for business planning
purposes

There is no correct starting point when using a bottom-up approach, and is

usually a judgment call
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Airport Economics: Revenue

What happens at an airport and how do airports generate revenue?

- Aircraft lands or takes off, passengers board an airplane or disembark, thus at a basic level,
airports charge landing fees, embarkation fees and handling fees

What are landing fees and how can they be projected?

- Landing fees should typically depend on aircraft size or weight
- Thus, for a given aircraft type (e.g. B737-300 which has a Maximum Takeoff Weight of approx
61 tons), multiply number of aircraft movements by aircraft weight by landing charge per ton to
arrive at revenue from landing fees

What are handling fees and how can they be projected?

- Airport operators charge a fee for passenger luggage and cargo handling, which is typically
done on a per flight basis, different business models exist in this case, but for now assume
airport operator is charging a fee per aircraft movement
- Thus, revenue from handling fees is total aircraft movements in a given period multiplied by
handling charges / AC movement

What are embarkation fees and how can they be projected?

- For every embarking passenger, airport operators charge a fee. To determine passenger
movements, a load factor or occupancy rate assumption is required
- Once passenger movements are determined, multiply total passengers in a given period by
embarkation fee / passenger to arrive at revenue from embarkation fees

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Airport Economics: Operating Costs

What are the major operating costs for an airport?

- Typically, Staff Salaries, Maintenance and Marketing are the major costs for an
airport

How are operating costs projected?

- Management often provides guidelines on cost projections, however operating cost
drivers can be developed using historical ratios
- Some suggested cost drivers are as follows:
Staff Salaries as a % of Operating Revenue
Maintenance as a % of Property Plant & Equipment
Marketing as a % of Revenue
Other Operating Costs as a % of Total Operating Costs (Excl. Other Operating Costs)

In the above example, to project Maintenance expense, we require constructing

a Capital Expenditures and Depreciation & Amortization schedule to complete
the Income Statement

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Airport Economics: Operating Model Set Up

It is advisable to brain storm the operating model set up on a piece of paper

In the airport example, we have identified the following as required drivers to

project landing, handling and embarkation fees:
- Aircraft Weight
Thus, we further require no. of seats in an aircraft and its maximum take off weight (MTOW)
- Aircraft Movements
An Aircraft Movement is defined as an aircraft landing or aircraft take-off. One arrival and
one departure are counted as two aircraft movements
Projecting aircraft movements is beyond the scope of this exercise
For simplicity all rates are stated on an Aircraft Movement basis
- Passengers
We can make assumptions on the average occupancy or load factor* to determine
passenger movements
- For Non Operating Revenue and Operating Costs we can make assumptions based
on historical ratios
Thus, we need to list out the above information in a neat, presentable format
which will become the basis of our operating model
* Load Factor = Revenue Passenger Mile / Available Seat Mile

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Airport Economics: Operating Model Set Up
Operating Model
Aircraft Specifications # of Seats LF Assump. MTOW (Tons) Revenue Driver Inflation Assumptions
B-737-300 Operating Revenue: Assumption: Rate:
A-320 Landing Charges / Ton
A310 Handling Charges / AC Movement
B747 Embarkation Fee / Passenger
Non Operating Revenue: Assumption: Rate:
Airport Development Fund
Flying Club
Step 1: Set up the operating model as shown
Rental Income

Revenue Driver Rates Historical Projected

2006 2007 2008 2009 2010 2011 2012
Landing Fees / Ton (PKR)
Handling Charges / AC Movement (PKR)
Embarkation Fees / Passenger (PKR)

Aircraft Traffic Forecast 2006 2007 2008 2009 2010 2011 2012
Aircraft Movements
B-737-300
A-320
Input the required historical drivers
A310
B747 Note: Inputs are always BLUE
Historical Load Factor
B-737-300
A-320
A310
B747

Passenger Forecast 2006 2007 2008 2009 2010 2011 2012

B-737-300
A-320
A310
B747

Operating Cost Rates Historical Projected

2006 2007 2008 2009 2010 2011 2012
Staff salaries as a % of Operating Revenue
Maintenance as a % of PP&E
Marketing & Advertising as a % of Revenue
Other Operating Costs as a % of Total Op Costs (ex-OOC)

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Airport Economics: Operating Model Set Up
Operating Model
Aircraft Specifications # of Seats LF Assump. MTOW (Tons) Revenue Driver Inflation Assumptions
B-737-300 118 0.5% Annually 61 Operating Revenue: Assumption: Rate:
A-320 140 0.8% Annually 73 Landing Charges / Ton Annually - Fixed 7%
A310 184 0.0% Annually 160 Handling Charges / AC Movement Annually - Fixed 9%
B747 398 -0.3% Annually 350 Embarkation Fee / Passenger Annually - Fixed 9%
Non Operating Revenue: Assumption: Rate:
Airport Development Fund as a % of Op Rev 24%
Flying Club as a % of Op Rev 4%
Step 2: Input required historical figures, rates and drivers to prepare projections
Rental Income as a % of Op Rev 15%

Revenue Driver Rates Historical Projected

2006 2007 2008 2009 2010 2011 2012
Landing Fees / Ton (PKR) Rs.93 Rs.96 Rs.99
Handling Charges / AC Movement (PKR) 55,000 57,750 60,638 Calculated based on Revenue Driver Inflation
Embarkation Fees / Passenger (PKR) 300 315 331 Assumptions
Aircraft Traffic Forecast 2006 2007 2008 2009 2010 2011 2012
Aircraft Movements
B-737-300 154 160 176 Air Traffic forecast taken from an Industry
A-320 130 156 160 Consultants report
A310 65 80 94
B747 45 40 37
Historical Load Factor
B-737-300 74% 77% 76%
A-320 83% 84% 82% Calculated based on LF assumption by aircraft
A310 72% 73% 76% type
B747 70% 65% 62%

Passenger Forecast 2006 2007 2008 2009 2010 2011 2012

B-737-300 13,447.3 14,537.6 15,783.7
A-320 15,106.0 18,345.6 18,368.0 Calculated as:
A310 8,611.2 10,745.6 13,145.0 # of Seats X Aircraft Movements X Load Factor
B747 12,537.0 10,348.0 9,130.1

Operating Cost Rates Historical Projected

2006 2007 2008 2009 2010 2011 2012
Staff salaries as a % of Operating Revenue 22.2% 20.9% 20.3%
Maintenance as a % of PP&E 1.7% 1.7% 1.7%
Marketing & Advertising as a % of Revenue 15.3% 14.2% 13.7%
Calculations based on average historical ratios
Other Operating Costs as a % of Total Op Costs (ex-OOC) 4.6% 4.9% 5.3%

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Airport Economics: Operating Model Set Up
Operating Model
Aircraft Specifications # of Seats LF Assump. MTOW (Tons) Revenue Driver Inflation Assumptions
B-737-300 118 0.5% Annually 61 Operating Revenue: Assumption: Rate:
A-320 140 0.8% Annually 73 Landing Charges / Ton Annually - Fixed 7%
A310 184 0.0% Annually 160 Handling Charges / AC Movement Annually - Fixed 9%
B747 398 -0.3% Annually 350 Embarkation Fee / Passenger Annually - Fixed 9%
Non Operating Revenue: Assumption: Rate:
Airport Development Fund as a % of Op Rev 24%
Flying Club as a % of Op Rev 4%
Step 3: Calculate projected drivers based on available data
Rental Income as a % of Op Rev 15%

Revenue Driver Rates Historical Projected

2006 2007 2008 2009 2010 2011 2012
Landing Fees / Ton (PKR) Rs.93 Rs.96 Rs.99 Rs. 106 Rs. 113 Rs. 121 Rs. 130
Handling Charges / AC Movement (PKR) 55,000 57,750 60,638 66,095 72,043 78,527 85,595
Embarkation Fees / Passenger (PKR) 300 315 331 361 393 428 467

Aircraft Traffic Forecast 2006 2007 2008 2009 2010 2011 2012
Aircraft Movements
B-737-300 154 160 176 179 188 213 243
A-320 130 156 160 164 174 197 213
Forecast taken from Industry
A310 65 80 94 100 105 135 156
B747 Consultants Report 45 40 37 35 35 35 35
Historical Load Factor
B-737-300 74% 77% 76% 77% 77% 78% 78%
A-320 83% 84% 82% 83% 84% 84% 85%
A310 Projected LF calculated based 72% 73% 76% 76% 76% 76% 76%
B747 on Load Factor Assumption 70% 65% 62% 62% 61% 61% 61%

Passenger Forecast 2006 2007 2008 2009 2010 2011 2012

B-737-300 13,447.3 14,537.6 15,783.7 16,158.3 17,081.7 19,478.9 22,365.7
A-320 15,106.0 18,345.6 18,368.0 18,999.4 20,340.6 23,236.2 25,347.0
A310 8,611.2 10,745.6 13,145.0 13,984.0 14,683.2 18,878.4 21,815.0
B747 12,537.0 10,348.0 9,130.1 8,594.8 8,553.0 8,511.2 8,469.4

Operating Cost Rates Historical Projected

2006 2007 2008 2009 2010 2011 2012
Staff salaries as a % of Operating Revenue 22.2% 20.9% 20.3% 21.1% 21.1% 21.1% 21.1%
Maintenance as a % of PP&E 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% 1.7%
Marketing & Advertising as a % of Revenue 15.3% 14.2% 13.7% 14.4% 14.4% 14.4% 14.4%
Other Operating Costs as a % of Total Op Costs (ex-OOC) 4.6% 4.9% 5.3% 4.9% 4.9% 4.9% 4.9%

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Airport Economics: Income Statement

Once the operating model drivers are laid out as discussed in the previous slide,
set up the Income Statement

Step 4: Set up and link historical Income Statement and identify fields which can be projected based on data gathered thus far

Income Statement Historical Financials Projected Financials

2006 2007 2008 2009 2010 2011 2012
Revenue
Landing Fees 4,188 4,603 4,990 (Aircraft Movements X Aircraft MTOW X Landing Fees / Ton)
Links must be in GREEN
Handling Fees 21,670 25,179 28,318 (Aircraft Movements X Handling Charges / Aircraft Movement)
Embarkation Fees 14,910 17,003 18,663 (Number of Passengers X Embarkation Fee / Passenger)
Total Operating Revenue 40,769 46,785 51,971
`
Non Operating Revenue
Airport Development Fund 9,564 11,478 12,389 (% of Total Operating Revenue based on Historical Ratios)
Flying Club 2,000 2,000 2,000 (% of Total Operating Revenue based on Historical Ratios)
Rental Income 5,600 6,735 8,353 (% of Total Operating Revenue based on Historical Ratios)
Total Revenue Rs.57,933 Rs.66,998 Rs.74,713

Operating Costs
Staff salaries Calculations in BLACK (9,044) (9,768) (10,549) (% of Total Operating Revenue based on Historical Ratios)
Maintenance (8,403) (8,874) (9,282) (% of PP&E ); Requires Cap Ex and D&A Schedule
Marketing & Advertising (8,843) (9,506) (10,267) (% of Total Revenue based on Historical Ratios)
Other Operating Costs (1,200) (1,380) (1,587) (% of Total Operating Costs (excl. OOC))
EBITDA 30,442 37,470 43,028

Depreciation & Amortization (21,400) (22,400) (23,352) Requires Cap Ex and D&A Schedule
EBIT 9,042 15,070 19,676

Interest Expense (3,190) (3,085) (3,020) Requires Debt and Interest Schedule
Interest Income 939 939 939 Requires Cash Balance - Hold Constant at 1,000 for now
EBT 6,791 12,924 17,595

Taxes @ 37.5% (2,377) (4,523) (6,158) Requires Tax Schedule

Net Income 4,414 8,400 11,437
Net Income Margin 7.6% 12.5% 15.3%

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Airport Economics: Projected Income Statement

Once the operating model is set up, revenue and certain costs can be projected,
additional schedules will be required to complete the Income Statement

Step 5: Populate fields which can be projected and identify schedules required to complete Income Statement

Income Statement Historical Financials Projected Financials

2006 2007 2008 2009 2010 2011 2012
Revenue
Landing Fees 4,188 4,603 4,990 5,417 6,032 7,425 8,770
Handling Fees 21,670 25,179 28,318 31,593 36,166 45,546 55,380
Embarkation Fees 14,910 17,003 18,663 20,815 23,837 30,028 36,415
Total Operating Revenue 40,769 46,785 51,971 57,826 66,035 82,999 100,565
`
Non Operating Revenue
Airport Development Fund 9,564 11,478 12,389 13,855 15,822 19,887 24,096
Flying Club 2,000 2,000 2,000 2,487 2,840 3,569 4,325
Rental Income 5,600 6,735 8,353 8,574 9,791 12,307 14,911
Total Revenue Rs.57,933 Rs.66,998 Rs.74,713 Rs.82,742 Rs.94,488 Rs.118,762 Rs.143,897

Operating Costs
Staff salaries (9,044) (9,768) (10,549) (12,213) (13,947) (17,530) (21,240)
Maintenance (8,403) (8,874) (9,282) Requires Cap Ex and D&A Schedule
Marketing & Advertising (8,843) (9,506) (10,267) (11,913) (13,605) (17,100) (20,719)
Other Operating Costs (1,200) (1,380) (1,587) Requires Cap Ex and D&A Schedule
EBITDA 30,442 37,470 43,028

Depreciation & Amortization (21,400) (22,400) (23,352) Requires Cap Ex and D&A Schedule
EBIT 9,042 15,070 19,676
Alerts in RED
Interest Expense (3,190) (3,085) (3,020) Requires Debt and Interest Schedule
Interest Income 939 939 939 Requires Cash Balance - Hold Constant at 1,000 for now
EBT 6,791 12,924 17,595

Taxes @ 37.5% (2,377) (4,523) (6,158) Requires Tax Schedule

Net Income 4,414 8,400 11,437
Net Income Margin 7.6% 12.5% 15.3%

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Table of Contents

1. Overview of Financial Modeling

2. Excel Best Practices
3. Kadmos Modeling Framework
4. Thebes Airport: Situation Overview
5. Income Statement and Operating Model
6. Capital Expenditures and D&A Schedules
7. Debt and Interest Schedules
8. Tax Schedule
9. Financial Model Set Up
10. Working Capital Schedule
11. Shareholders Equity Schedule
12. Linking Financial Statements
13. Introduction to Valuation and Preliminary Returns Analysis
14. Control Page and Sensitivity Analysis

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Cap Ex and D&A Overview

Capital Expenditures accumulate Property Plant & Equipment or other Non

Current Assets on a companys Balance Sheet

Depreciation and Amortization is a non-cash expense which is recorded to

account for the wear and tear of assets
- Depreciation is recorded for tangible assets such as PP&E
- Amortization is recorded for intangible assets such as Goodwill

Depreciation and Amortization is thus added back to Net Income in the Cash
Flow statement since it is a non-cash item

A Cap Ex and D&A schedule ensures that future Cap Ex does not get lumped in
with existing assets

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Schedule Set Up

Reference and link historical PP&E, Other Non Current Assets, Accumulated
Depreciation and related Cap Ex from historical financials

The airport example assumes management has provided guidance on Cap Ex,
otherwise the following assumptions are also reasonable:
- Cap Ex can be projected as a % of Sales
- Cap Ex can be projected assuming it remains equal to depreciation

Create a schedule which ensures that subsequent Cap Ex is depreciated

separately and not lumped in with existing balances

Identify and state depreciation assumption on the schedule

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Schedule Set Up

Step 6: Set up D&A schedule and link required historical line items

Cap Ex and D&A Schedule

Historical Financials Projected Financials
2006 2007 2008 2009 2010 2011 2012
Property Plant & Equipment 500,000 520,000 540,800 (Existing PP&E + Cap Ex on PP&E)
Other Non Current Assets 25,889 26,666 27,466 (Existing Non Current Assets + Cap Ex on Non Current Assets)
Accumulated Depreciation (167,654) (190,054) (213,406) (Existing Accumulated D&A + D&A Expense of relevant year)
Capital Exependitures - PP&E 20,000 20,800 Projected based on management guidance
Capital Exependitures - Other Non Current Assets 777 800 Projected based on management guidance

Depreciation Expense (A + B + C + D) 21,400 22,400 23,352 (A + B + C + D)

D&A Method: Straight Line assuming no residual value

(A)----> Depreciation on Existing Gross PP&E 18,027 18,027 18,027 18,027

Useful Life (in years) Remaining of Existing Net PP&E 30

Year CapEx Useful Life 2009 2010 2011 2012

2009 23 Years
2010 25 Years
2011 25 Years
2012 25 Years
(B)----> Depreciation on Cap Ex

(C)----> Depreciation on Other Non Current Assets 3,433 3,433 3,433 3,433
Useful Life (in years) Remaining of Existing Net PP&E 8

Year CapEx Useful Life 2009 2010 2011 2012

2009 10 Years
2010 10 Years
2011 10 Years
2012 10 Years
(D)----> Depreciation on Cap Ex

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Cap Ex and D&A Schedule

Step 7: Populate projected line items based on formulae and assumptions

Cap Ex and D&A Schedule

Historical Financials Projected Financials
2006 2007 2008 2009 2010 2011 2012
Property Plant & Equipment 500,000 520,000 540,800 585,552 631,294 678,066 725,908
Other Non Current Assets 25,889 26,666 27,466 28,466 29,666 30,916 32,166
Accumulated Depreciation (167,654) (190,054) (213,406) (236,912) (262,367) (289,818) (319,308)
Capital Exependitures - PP&E 20,000 20,800 44,752 45,742 46,772 47,843
Capital Exependitures - Other Non Current Assets 777 800 1,000 1,200 1,250 1,250

Depreciation Expense (A + B + C + D) 21,400 22,400 23,352 23,506 25,455 27,451 29,490

D&A Method: Straight Line assuming no residual value

(A)----> Depreciation on Existing Gross PP&E 18,027 18,027 18,027 18,027

Useful Life (in years) Remaining of Existing Net PP&E 30

Year CapEx Useful Life 2009 2010 2011 2012

2009 44,752 23 Years 1,946 1,946 1,946 1,946
2010 45,742 25 Years 1,830 1,830 1,830
2011 46,772 25 Years 1,871 1,871
2012 47,843 25 Years 1,914
(B)----> Depreciation on Cap Ex 1,946 3,775 5,646 7,560

(C)----> Depreciation on Other Non Current Assets 3,433 3,433 3,433 3,433
Useful Life (in years) Remaining of Existing Net PP&E 8

Year CapEx Useful Life 2009 2010 2011 2012

2009 1,000 10 Years 100 100 100 100
2010 1,200 10 Years 120 120 120
2011 1,250 10 Years 125 125
2012 1,250 10 Years 125
(D)----> Depreciation on Cap Ex 100 220 345 470

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Table of Contents

1. Overview of Financial Modeling

2. Excel Best Practices
3. Kadmos Modeling Framework
4. Thebes Airport: Situation Overview
5. Income Statement and Operating Model
6. Capital Expenditures and D&A Schedules
7. Debt and Interest Schedules
8. Tax Schedule
9. Financial Model Set Up
10. Working Capital Schedule
11. Shareholders Equity Schedule
12. Linking Financial Statements
13. Introduction to Valuation and Preliminary Returns Analysis
14. Control Page and Sensitivity Analysis

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Debt and Interest Overview

Debt and Interest Schedule is a simplified representation of a companys loan

obligations

Debt and Interest Schedule is useful because it allows the user to distinguish
and project different types of debt instruments
- A fixed rate long term loan is the most basic debt instrument which has a fixed
amortization schedule and corresponding interest payments
- A variable rate loan requires projecting a forward curve for the variable base
(KIBOR, LIBOR, Prime Rate etc)

Debt schedules make it easy for the user to make required updates depending
on macro-economic news
- A central bank announced rate cut will certainly have an impact on any forward
curve used to project interest expense

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Schedule Set Up

Reference and link historical Debt Balances and the following information:
- Face Value
- Term
- Rate Type (Floating or Fixed)
- Base Rate
- Spread
Input a projected forward curve for debt instruments tied to a floating rate
Step 8: Set up the Debt and Interest schedule and input historical balances

Debt & Interest

Debt Obligations Face Value Term Type Base Rate Spread
Secured Debt 24,000 12 Years Fixed 8.5% N/A
Unsecured Debt 10,000 10 Years Floating KIBOR 2.5%

Historical Projected
2006 2007 2008 2009 2010 2011 2012

KIBOR - Historical and Forward Curve 9.0% 11.0% 14.0% 13.0% 12.5% 11.0% 8.0%
Secured Debt - Principal Amount Outstanding 24,000 22,000 20,000 (Existing Balance - Face Value / Term)
Unsecured Debt - Principal Amount Outstanding 10,000 9,000 8,000 (Existing Balance - Face Value / Term)

Secured Debt - Interest Expense 2,040 1,870 1,700 (Existing Balance X Base Rate [or 8.5% in this case])
Unsecured Debt - Interest Expense 1,150 1,215 1,320 (Existing Balance X (Base Rate + Spread)
Total Interest Expense 3,190 3,085 3,020

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Debt and Interest Schedule

Calculate projected debt and interest payments based on available data

In yearly models assuming interest expense = interest payment is a safe

assumptions
- However, in quarterly on monthly models this is not the case

Step 9: Complete the Debt & Interest Schedule

Debt & Interest

Debt Obligations Face Value Term Type Base Rate Spread
Secured Debt 24,000 12 Years Fixed 8.5% N/A
Unsecured Debt 10,000 10 Years Floating KIBOR 2.5%

Historical Projected
2006 2007 2008 2009 2010 2011 2012

KIBOR - Historical and Forward Curve 9.0% 11.0% 14.0% 13.0% 12.5% 11.0% 8.0%
Secured Debt - Principal Amount Outstanding 24,000 22,000 20,000 18,000 16,000 14,000 12,000
Unsecured Debt - Principal Amount Outstanding 10,000 9,000 8,000 7,000 6,000 5,000 4,000

Secured Debt - Interest Expense 2,040 1,870 1,700 1,530 1,360 1,190 1,020
Unsecured Debt - Interest Expense 1,150 1,215 1,320 1,085 900 675 420
Total Interest Expense 3,190 3,085 3,020 # 2,615 2,260 1,865 1,440

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Table of Contents

1. Overview of Financial Modeling

2. Excel Best Practices
3. Kadmos Modeling Framework
4. Thebes Airport: Situation Overview
5. Income Statement and Operating Model
6. Capital Expenditures and D&A Schedules
7. Debt and Interest Schedules
8. Tax Schedule
9. Financial Model Set Up
10. Working Capital Schedule
11. Shareholders Equity Schedule
12. Linking Financial Statements
13. Introduction to Valuation and Preliminary Returns Analysis
14. Control Page and Sensitivity Analysis

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Taxes Overview

Pre-Tax Income or EBT is typically taxed at a fixed percentage, which ranges

from approx. 35-38% depending on jurisdiction, and for simple cases such as
the example being discussed in this course, a Tax Schedule is not necessarily
required

However, in cases where the company under review has significant Net
Operating Losses or taxation is based on a metric other than EBT, a detailed Tax
Schedule is required

In the airport example under discussion, we are assuming EBT is taxed at 35%,
and no taxes are paid if EBT is negative

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Schedule Set Up

Reference and link historical taxes paid

Calculate historical tax rate

In practice, arriving at a constant tax rate for each year is not usually the case

Step 10: Set up the Tax schedule and input historical figures

Tax Schedule
Historical Projected
2006 2007 2008 2009 2010 2011 2012

EBT Rs. 6,791.0 Rs. 12,923.8 Rs. 17,595.0

Tax Rate 35.0% 35.0% 35.0%
Taxes Payable ($2,376.9) ($4,523.3) ($6,158.3)

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Tax Schedule

Link projected Earnings Before Taxes (EBT)

Apply a projected tax rate based on historical figures

Incorporate an IF statement which ensures that if EBT is negative, no taxes are

paid
Step 11: Complete the Tax Schedule

Tax Schedule
Historical Projected
2006 2007 2008 2009 2010 2011 2012

EBT Rs. 6,791.0 Rs. 12,923.8 Rs. 17,595.0 Rs. 22,472.5 Rs. 28,792.7 Rs. 43,783.9 Rs. 59,340.8
Tax Rate 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0%
Taxes Payable ($2,376.9) ($4,523.3) ($6,158.3) ($7,865.4) ($10,077.4) ($15,324.4) ($20,769.3)

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Table of Contents

1. Overview of Financial Modeling

2. Excel Best Practices
3. Kadmos Modeling Framework
4. Thebes Airport: Situation Overview
5. Income Statement and Operating Model
6. Capital Expenditures and D&A Schedules
7. Debt and Interest Schedules
8. Tax Schedule
9. Financial Model Set Up
10. Working Capital Schedule
11. Shareholders Equity Schedule
12. Linking Financial Statements
13. Introduction to Valuation and Preliminary Returns Analysis
14. Control Page and Sensitivity Analysis

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Financial Model Set Up

Upon completing Cap Ex-D&A, Debt & Interest and Tax Schedules we are ready
to populate the Income Statement and set up our Financial Model
Step 12: Populate the remaining items on the Income Statement and assume an arbitrary figure for Interest Income for now

Income Statement Historical Financials Projected Financials

2006 2007 2008 2009 2010 2011 2012
Revenue
Landing Fees 4,188 4,603 4,990 5,417 6,032 7,425 8,770
Handling Fees 21,670 25,179 28,318 31,593 36,166 45,546 55,380
Embarkation Fees 14,910 17,003 18,663 20,815 23,837 30,028 36,415
Total Operating Revenue 40,768.6 46,784.7 51,971.1 57,825.7 66,034.6 82,999.0 100,565.2
`
Non Operating Revenue
Airport Development Fund 9,564 11,478 12,389 13,855 15,822 19,887 24,096
Flying Club 2,000 2,000 2,000 2,487 2,840 3,569 4,325
Rental Income 5,600 6,735 8,353 8,574 9,791 12,307 14,911
Total Revenue Rs.57,932.6 Rs.66,997.7 Rs.74,713.1 Rs.82,742.0 Rs.94,488.0 Rs.118,762.1 Rs.143,897.3

Operating Costs
Staff salaries (9,044) (9,768) (10,549) (12,213) (13,947) (17,530) (21,240)
Maintenance (8,403) (8,874) (9,282) (9,961) (10,739) (11,535) (12,349)
Marketing & Advertising (8,843) (9,506) (10,267) (11,913) (13,605) (17,100) (20,719)
Other Operating Costs (1,200) (1,380) (1,587) (1,675) (1,881) (2,268) (2,668)
EBITDA 30,442 37,470 43,028 46,980 54,316 70,330 86,922

Depreciation & Amortization (21,400) (22,400) (23,352) (23,506) (25,455) (27,451) (29,490)
EBIT 9,042 15,070 19,676 23,474 28,861 42,879 57,432

Interest Expense (3,190) (3,085) (3,020) (2,615) (2,260) (1,865) (1,440)

Interest Income 939 939 939 1,000 1,000 1,000 1,000
EBT 6,791 12,924 17,595 21,859 27,601 42,014 56,992

Taxes @ 37.5% (2,377) (4,523) (6,158) (7,651) (9,660) (14,705) (19,947)

Net Income 4,414 8,400 11,437 14,209 17,941 27,309 37,045
Net Income Margin 7.6% 12.5% 15.3% 17.2% 19.0% 23.0% 25.7%

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Financial Model Set Up

Step 13: Project Balance Sheet using existing information and schedules, and identify additional schedules required

Balance Sheet Historical Financials Projected Financials

(Pak Rupees in 000s, except per share amounts) 2006 2007 2008 2009 2010 2011 2012
Assets
Cash and Equivalents 10,430 14,028 19,970 Recquires Cash Flow Statement completed
Accounts Receivable 13,000 13,910 14,884 Requires Working Capital Schedule
Inventory 5,000 5,400 5,500 Requires Working Capital Schedule
Other Current Assets 9,105 10,016 11,017 Requires Working Capital Schedule
Total Current Assets 37,535 43,353 51,370
Linked to Cap Ex and D&A Schedule
Gross PP&E 500,000 520,000 540,800 585,552 631,294 678,066 725,908
Other Non Current Assets 25,889 26,666 27,466 28,466 29,666 30,916 32,166
Accumulated Depreciation (167,654) (190,054) (213,406) (236,912) (262,367) (289,818) (319,308)
Total Assets 395,770 399,965 406,230 377,106 398,593 419,163 438,766

Liabilities and Shareholders' Equity

Accounts Payable 2,476 2,426 2,378 Requires Working Capital Schedule
Accrued Expenses and Other Current Liabilities 2,467 2,418 2,369 Requires Working Capital Schedule
Total Current Liabilities 4,943 4,844 4,747
Linked to Debt and Interest Schedule
Secured Debt 24,000 22,000 20,000 18,000 16,000 14,000 12,000
Unsecured Debt 10,000 9,000 8,000 7,000 6,000 5,000 4,000
Total Debt 34,000 31,000 28,000 25,000 22,000 19,000 16,000

Other Non Current Liabilities 10,123 9,921 9,722 Requires Working Capital Schedule
Total Liabilities 49,066 45,765 42,469

Shareholders' Equity
Authorized Capital of 200,000,000 common shares
of Rs. 1 each
Common stock issued at par 100,000 100,300 100,601 Requires Shareholder's Equity schedule
Additional paid-in capital 234,987 235,692 236,399 Requires Shareholder's Equity schedule
Common stock issued at par to SAS Requires Shareholder's Equity schedule
Additional paid-in capital by SAS Requires Shareholder's Equity schedule
Accumulated earnings (deficit) 11,717 18,208 26,761 Previous Year's Balance + Net Income - Dividends
Total Shareholders' Equity 346,704 354,200 363,761

Total Liabilities & Shareholders' Equity 395,770 399,965 406,230

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Table of Contents

1. Overview of Financial Modeling

2. Excel Best Practices
3. Kadmos Modeling Framework
4. Thebes Airport: Situation Overview
5. Income Statement and Operating Model
6. Capital Expenditures and D&A Schedules
7. Debt and Interest Schedules
8. Tax Schedule
9. Financial Model Set Up
10. Working Capital Schedule
11. Shareholders Equity Schedule
12. Linking Financial Statements
13. Introduction to Valuation and Preliminary Returns Analysis
14. Control Page and Sensitivity Analysis

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Working Capital Overview

Working Capital is defined as Current Assets Current Liabilities and represents

the operating liquidity available to a business

Typically, Working Capital has three components

- Accounts Receivable
- Inventory
- Accounts Payable

Accounts Receivable, Inventory and Accounts Payable are projected based on

collection periods and number of days for which they remain outstanding

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Schedule Set Up

Where available, always use historical working capital ratios to develop

projections, otherwise utilize industry averages based comparables
Assume 364.25 days in a year to account for leap years

Step 14: Set up the Working Capital Schedule by linking Total Revenue and Operating Costs

Working Capital

(Pak Rupees in 000s, except per share amounts) Historical Financials Projected Financials
2006 2007 2008 2009 2010 2011 2012

Total Revenue 57,933 66,998 74,713 82,742 94,488 118,762 143,897

Total Operating Costs (27,490) (29,528) (31,685) (35,762) (40,172) (48,432) (56,975)

Assets
Accounts Receivable 13,000 13,910 14,884 (Total Revenue X AR Collection Period / Days in a Year)
Inventory 5,000 5,400 5,500 (Total Operating Costs X Inv Days Outstanding / Days in a Year)
Other Current Assets 9,105 10,016 11,017 (Total Revenue X Other Current Assets as a % of Revenue)

Liabilities
Accounts Payable 2,476 2,426 2,378 (Total Operating Costs X AP (Days Payable) / Days in a Year)
Accrued Expenses and Other Current Liabilities 2,467 2,418 2,369 (Total Operating Costs X Accr. Exp and OCL as a % of Op Costs)
Other Non Current Liabilities 10,123 9,921 9,722 (Total Operating Costs X Other Non CL as a % of Op Costs)

Ratios and Assumptions

Days in a Year 364.25
Accounts Receivable (Collection Period in Days) AR Balance X Days In a Year / Total Revenue
Use appropriate averages for historical
Inventory (Days Outstanding) Inventory Balance X Days in a Tear / Total Op Costs
Other Current Assets as a % of Total Revenue Current Assets / Total Revenue
ratios or incorporate working capital
improvements based on management
Accounts Payable (Days Payable) AP Balance X Days in a Year / Total Operating Costs discussions
Accrued Expenses and Other CL (as a % of Op Costs) Accr. Exp and Other CL / Total Operating Costs
Other Non Current Liabilities (as a % of Op Costs) Other Non CL / Total Operating Costs

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Working Capital Schedule

An increase in liabilities implies an increase in cash, and in increase in assets

implies a decrease in cash
Other Non Current Liabilities are not a component of Working Capital, but has
been included in this schedule for simplicity
Step 15: Project working capital accounts based on projected drivers

Working Capital
(Pak Rupees in 000s, except per share amounts) Historical Financials Projected Financials
2006 2007 2008 2009 2010 2011 2012

Total Revenue 57,933 66,998 74,713 82,742 94,488 118,762 143,897

Total Operating Costs (27,490) (29,528) (31,685) (35,762) (40,172) (48,432) (56,975)

Assets
Accounts Receivable 13,000 13,910 14,884 17,410 19,103 23,032 26,722
Inventory 5,000 5,400 5,500 6,417 6,878 7,893 8,816
Other Current Assets 9,105 10,016 11,017 12,525 14,303 17,977 21,782

Liabilities
Accounts Payable 2,476 2,426 2,378 2,948 3,311 3,992 4,697
Accrued Expenses and Other Current Liabilities 2,467 2,418 2,369 2,937 3,299 3,978 4,679
Other Non Current Liabilities 10,123 9,921 9,722 12,052 13,539 16,323 19,202

Ratios and Assumptions Incorporate Working Capital Improvements if required

Days in a Year 364.25
Accounts Receivable (Collection Period in Days) 82 76 73 77 74 71 68
Inventory (Days Outstanding) 66 67 63 65 62 59 56
Other Current Assets as a % of Total Revenue 15.7% 14.9% 14.7% 15.1% 15.1% 15.1% 15.1%

Accounts Payable (Days Payable) 33 30 27 30 30 30 30

Accrued Expenses and Other CL (as a % of Op Costs) 9.0% 8.2% 7.5% 8.2% 8.2% 8.2% 8.2%
Other Non Current Liabilities (as a % of Op Costs) 36.8% 33.6% 30.7% 33.7% 33.7% 33.7% 33.7%

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Table of Contents

1. Overview of Financial Modeling

2. Excel Best Practices
3. Kadmos Modeling Framework
4. Thebes Airport: Situation Overview
5. Income Statement and Operating Model
6. Capital Expenditures and D&A Schedules
7. Debt and Interest Schedules
8. Tax Schedule
9. Financial Model Set Up
10. Working Capital Schedule
11. Shareholders Equity Schedule
12. Linking Financial Statements
13. Introduction to Valuation and Preliminary Returns Analysis
14. Control Page and Sensitivity Analysis

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Shareholders Equity Overview

Shareholders Equity is the interest in remaining assets of a company spread

among shareholders and is defined as Total Assets Total Liabilities

Shareholders Equity has the following components

- Authorized Capital
- Paid up Capital
- Additional Paid in Capital
- Accumulated Earnings / (Deficit)

Authorized Capital is the maximum the Company is authorized to issue to its

shareholders and is thus not summed up when calculating Shareholders Equity

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Schedule Set Up

Set up a schedule which assumes annual dividend payment but no additional

issuance of shares or re-purchases
- Assume that this restriction has been imposed by SAS Capital as a pre-condition
for making a minority investment in Thebes Airport

Step 16: Link historical ending equity balance and identify dividends paid in the past three years to calculate dividend pay out ratio

Shareholder's Equity Schedule

Historical Financials Projected Financials

2006 2007 2008 2009 2010 2011 2012
Beginning Equity Balance 361,748
Net Income 4,414 8,400 11,437 14,209 17,941 27,309 37,045
Additional shares issued to SAS at par Requires Valuation Consideration Schedule
Additional paid in capital by SAS Requires Valuation Consideration Schedule
Dividends Paid (1,545.0) (1,909.0) (2,884.5) Link to Calculation Below
Ending Equity Balance 346,704 353,195 361,748 (SUM the above, be careful with signs)

Dividend Assumptions
Total Dividends Paid 1,545.0 1,909.0 2,884.5 (Net Income X Dividend Pay Out Ratio)
Net Income 4,414 8,400 11,437 14,209 17,941 27,309 37,045
Divident Payout Ratio 35% 23% 25% (Assumption based on historical ratios)

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SAS Capital Partners Investment Proposal

Assume for now that SAS Capital decides to invest Rs. 30 MM at Rs 2.8 / share
for 9.6% of the Company
- Details of how SAS arrived at Rs 2.8 / share will be discussed later
The purchase offer implies an 7.7% premium over the current stock price
Private Placement Proposal Summary
Investment Amount offered by SAS Capital 30,000
Offer price / share Rs. 2.8
Additional Shares Issued to SAS 10,714
Current Shares Outstanding 100,601

Common shares outstanding post SAS investment 111,315

Stock Price as of 05/04/2009 Rs. 2.6

Premium Paid by SAS Capital 7.7%

Assume existing shareholders interest in Thebes is proportionally diluted as a

result of SAS investment
Capital Structure as of 05/04/2009 Capital Structure post SAS Investment
Shareholders % of Total Common shares held Shareholders % of Total Common shares held
Frontier Capital Corporation 55% 55,345 Frontier Capital Corporation 49.7% 55,345
Shareef Brothers Limited 17% 16,893 Shareef Brothers Limited 15.2% 16,893
Establishment Foundation 15% 15,456 Establishment Foundation 13.9% 15,456
Publicly Traded 13% 12,907 SAS Capital Partners 9.6% 10,714
Total Common Shares Outstanding 100% 100,601 Publicly Traded 11.6% 12,907
Total Common Shares Outstanding 100% 111,315

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Shareholders Equity Schedule

A Rs. 30 MM investment at Rs. 2.8 / share implies 10,714 additional shares were
issued to SAS and the remaining amount was additional paid in capital
For simplicity assume that no additional shares will be re-purchased or issued
post SAS investment in Thebes Airport
Step 17: Complete the Shareholders Equity Schedule by calculating projected balances

Shareholder's Equity Schedule

Historical Financials Projected Financials

2006 2007 2008 2009 2010 2011 2012
Beginning Equity Balance 361,748 402,688 416,503 437,530
Net Income 4,414 8,400 11,437 14,209 17,941 27,309 37,045
Additional shares issued to investor at par 10,714
Additional paid in capital by investor 19,286
Dividends Paid (1,545.0) (1,909.0) (2,884.5) (3,268.0) (4,126.3) (6,281.0) (8,520.3)
Ending Equity Balance 346,704 353,195 361,748 402,688 416,503 437,530 466,055

Dividend Assumptions
Total Dividends Paid 1,545.0 1,909.0 2,884.5 3,268.0 4,126.3 6,281.0 8,520.3
Net Income 4,414 8,400 11,437 14,209 17,941 27,309 37,045
Divident Payout Ratio 35% 23% 25% 23% 23% 23% 23%

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Table of Contents

1. Overview of Financial Modeling

2. Excel Best Practices
3. Kadmos Modeling Framework
4. Thebes Airport: Situation Overview
5. Income Statement and Operating Model
6. Capital Expenditures and D&A Schedules
7. Debt and Interest Schedules
8. Tax Schedule
9. Financial Model Set Up
10. Working Capital Schedule
11. Shareholders Equity Schedule
12. Linking Financial Statements
13. Introduction to Valuation and Preliminary Returns Analysis
14. Control Page and Sensitivity Analysis

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Financial Model Set Up

Let us return to the partially completed Balance Sheet from the earlier illustration
Balance Sheet Historical Financials Projected Financials
(Pak Rupees in 000s, except per share amounts) 2006 2007 2008 2009 2010 2011 2012
Assets
Cash and Equivalents 10,430 14,028 19,970 Recquires Cash Flow Statement completed
Accounts Receivable 13,000 13,910 14,884 Requires Working Capital Schedule
Inventory 5,000 5,400 5,500 Requires Working Capital Schedule
Other Current Assets 9,105 10,016 11,017 Requires Working Capital Schedule
Total Current Assets 37,535 43,353 51,370
Linked to Cap Ex and D&A Schedule
Gross PP&E 500,000 520,000 540,800 585,552 631,294 678,066 725,908
Other Non Current Assets 25,889 26,666 27,466 28,466 29,666 30,916 32,166
Accumulated Depreciation (167,654) (190,054) (213,406) (236,912) (262,367) (289,818) (319,308)
Total Assets 395,770 399,965 406,230 377,106 398,593 419,163 438,766

Liabilities and Shareholders' Equity

Accounts Payable 2,476 2,426 2,378 Requires Working Capital Schedule
Accrued Expenses and Other Current Liabilities 2,467 2,418 2,369 Requires Working Capital Schedule
Total Current Liabilities 4,943 4,844 4,747
Linked to Debt and Interest Schedule
Secured Debt 24,000 22,000 20,000 18,000 16,000 14,000 12,000
Unsecured Debt 10,000 9,000 8,000 7,000 6,000 5,000 4,000
Total Debt 34,000 31,000 28,000 25,000 22,000 19,000 16,000

Other Non Current Liabilities 10,123 9,921 9,722 Requires Working Capital Schedule
Total Liabilities 49,066 45,765 42,469

Shareholders' Equity
Authorized Capital of 200,000,000 common shares
of Rs. 1 each
Common stock issued at par 100,000 100,300 100,601 Requires Shareholder's Equity schedule
Additional paid-in capital 234,987 235,692 236,399 Requires Shareholder's Equity schedule
Common stock issued at par to SAS Requires Shareholder's Equity schedule
Additional paid-in capital by SAS Requires Shareholder's Equity schedule
Accumulated earnings (deficit) 11,717 18,208 26,761 Previous Year's Balance + Net Income - Dividends
Total Shareholders' Equity 346,704 354,200 363,761

Total Liabilities & Shareholders' Equity 395,770 399,965 406,230

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Linking Financial Statements

Upon linking the remaining items, only the Cash and Equivalents line item
remains, which will be populated after completing the Cash Flow Statement
Step 18: Link remaining items to the Working Capital and Shareholders Equity Schedules

Balance Sheet Historical Financials Projected Financials

(Pak Rupees in 000s, except per share amounts) 2006 2007 2008 2009 2010 2011 2012
Assets
Cash and Equivalents 10,430 14,028 19,970 To be calculated after completion of Cash Flow Statement
Accounts Receivable 13,000 13,910 14,884 17,410 19,103 23,032 26,722
Inventory 5,000 5,400 5,500 6,417 6,878 7,893 8,816
Other Current Assets 9,105 10,016 11,017 12,525 14,303 17,977 21,782
Total Current Assets 37,535 43,353 51,370 36,352 40,284 48,903 57,320

Gross PP&E 500,000 520,000 540,800 585,552 631,294 678,066 725,908

Other Non Current Assets 25,889 26,666 27,466 28,466 29,666 30,916 32,166
Accumulated Depreciation (167,654) (190,054) (213,406) (236,912) (262,367) (289,818) (319,308)
Total Assets 395,770 399,965 406,230 413,458 438,876 468,066 496,086

Liabilities and Shareholders' Equity

Accounts Payable 2,476 2,426 2,378 2,948 3,311 3,992 4,697
Accrued Expenses and Other Current Liabilities 2,467 2,418 2,369 2,937 3,299 3,978 4,679
Total Current Liabilities 4,943 4,844 4,747 5,885 6,611 7,970 9,376

Secured Debt 24,000 22,000 20,000 18,000 16,000 14,000 12,000

Unsecured Debt 10,000 9,000 8,000 7,000 6,000 5,000 4,000
Total Debt 34,000 31,000 28,000 25,000 22,000 19,000 16,000

Other Non Current Liabilities 10,123 9,921 9,722 12,052 13,539 16,323 19,202
Total Liabilities 49,066 45,765 42,469 42,938 42,149 43,293 44,578

Shareholders' Equity
Authorized Capital of 200,000,000 common shares
of Rs. 1 each
Common stock issued at par 100,000 100,300 100,601 100,601 100,601 100,601 100,601
Additional paid-in capital 234,987 235,692 236,399 236,399 236,399 236,399 236,399
Common stock issued at par to SAS 10,714 10,714 10,714 10,714
Additional paid-in capital by SAS 19,286 19,286 19,286 19,286
Accumulated earnings (deficit) 11,717 18,208 26,761 37,701 51,516 72,543 101,068
Total Shareholders' Equity 346,704 354,200 363,761 404,701 418,515 439,543 468,068

Total Liabilities & Shareholders' Equity 395,770 399,965 406,230 447,639 460,665 482,836 512,646

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Linking Financial Statements

Before populating the Cash Flow Statement, review the formulae and links
required
Step 19: Set up the Cash Flow Statement

Cash Flow Statement Historical Financials Projected Financials

(Pak Rupees in 000s, except per share amounts) 2006 2007 2008 2009 2010 2011 2012
Cash Flow from Operations
Net Income From Income Statement
(+) Depreciation & Amortization From Income Statement (D&A is a non cash item)
(Increase)/Decrease in Accounts Receivable For 2009: AR in 2008 - AR in 2009
(Increase)/Decrease in Inventory For 2009: Inventory in 2008 - Inventory in 2009
(Increase)/Decrease in Other Current Assets For 2009: Other Current Assets in 2008 - Other Current Assets in 2009
Increase/(Decrease) in Accounts Payable For 2009: AP in 2009 - AP in 2008
Increase/(Decrease) in Accr. Exp and Other CL For 2009: Accr. Exp & Other CL in 2009 - Accr. Exp & Other CL in 2008
Increase/(Decrease) in Accrued Exp. And Other Non CL For 2009: Accr. Exp & Other Non CL in 2009 - Accr. Exp & Other Non CL in 2008
Total Cash Flow from Operating Activities (SUM all items above); Be careful with signs for working capital changes

Cash Flow from Investing Activities

(-) Capital Expenditures Management typically provides guidance on CapEx; often CapEx = D&A is assumed
(+) Asset Sales Management typically provides guidance on Asset Sales
(-) Acquisition of Assets / Other Securities Management typically provides guidance on Acquisition of Assets
Total Cash Flow from Investing Activities (Asset Sales - CapEx - Acquisition of Assets)

Cash Flow from Financing

(+) Issuance of Common Stock Management typically provides guidance
(+) Proceeds from Secured Debt Requires Debt & Interest Schedule
(+) Proceeds from Unsecured Debt Requires Debt & Interest Schedule
(+) Proceeds from Equity Raise from Foreign Investor Requires Shareholder's Equity Schedule
(-) Dividends Paid Requires Shareholder's Equity Schedule
(-) Payment of Secured Debt Requires Debt & Interest Schedule
(-) Payment of Unsecured Debt Requires Debt & Interest Schedule
Total Cash Flow from Financing Activities (SUM all items above); Be careful with signs for debt payments and debt proceeds

Change in Cash Balance (Cash flow from Operation + Investing + Financing)

Change in cash is linked back to the balance sheet, and that is how a balance sheet is balanced!

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 Linking Financial Statements

Pay careful attention to signs, especially for working capital accounts

Step 20: Complete the Cash Flow Statement from the corresponding Balance Sheet

Cash Flow Statement Historical Financials Projected Financials

(Pak Rupees in 000s, except per share amounts) 2006 2007 2008 2009 2010 2011 2012
Cash Flow from Operations
Net Income 8,400 11,437 14,591 18,078 27,056 36,675
(+) Depreciation & Amortization 22,400 23,352 23,506 25,455 27,451 29,490
(Increase)/Decrease in Accounts Receivable (910) (974) (2,526) (1,693) (3,929) (3,690)
(Increase)/Decrease in Inventory (400) (100) (917) (460) (1,015) (923)
(Increase)/Decrease in Other Current Assets (911) (1,002) (1,508) (1,778) (3,674) (3,805)
Increase/(Decrease) in Accounts Payable (50) (49) 570 363 681 704
Increase/(Decrease) in Accrued Expenses & Other Current Liabilities (49) (48) 568 362 678 702
Increase/(Decrease) in Accrued Expenses & Other Non Current Liabilities (202) (198) 2,330 1,486 2,784 2,879
Total Cash Flow from Operating Activities 28,279 32,418 36,614 41,813 50,031 62,032

Cash Flow from Investing Activities

(-) Capital Expenditures on PP&E (20,000) (20,800) (44,752) (45,742) (46,772) (47,843)
(-) Capital Expenditures on Other Non Current Assets (1,000) (1,200) (1,250) (1,250)
(+) Asset Sales
(-) Acquisition of Assets / Other Securities
Total Cash Flow from Investing Activities (20,000) (20,800) (45,752) (46,942) (48,022) (49,093)

Cash Flow from Financing

(+) Issuance of Common Stock
(+) Proceeds from Secured Debt
(+) Proceeds from Unsecured Debt
(+) Proceeds from Equity Raise from Foreign Investor 30,000.0 0.0 0.0 0.0
(-) Dividends Paid (3,268.0) (4,126.3) (6,281.0) (8,520.3)
(-) Payment of Secured Debt (2,000) (2,000) (2,000) (2,000) (2,000) (2,000)
(-) Payment of Unsecured Debt (1,000) (1,000) (1,000) (1,000) (1,000) (1,000)
Total Cash Flow from Financing Activities (3,000) (3,000) 23,732 (7,126) (9,281) (11,520)

Change in Cash Balance 5,279 8,618 14,594 (12,255) (7,272) 1,419

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 Linking Financial Statements

Step 21: Link the change in cash to the existing balance sheet; Include a Balance Sheet Check (Total Assets = Total Liab + SH Equity)

Balance Sheet Historical Financials Projected Financials

(Pak Rupees in 000s, except per share amounts) 2006 2007 2008 2009 2010 2011 2012
Assets
Cash and Equivalents 10,430 14,028 19,970 34,563 22,308 15,037 16,456
Accounts Receivable 13,000 13,910 14,884 17,410 19,103 23,032 26,722
Inventory 5,000 5,400 5,500 6,417 6,878 7,893 8,816
Other Current Assets 9,105 10,016 11,017 12,525 14,303 17,977 21,782
Total Current Assets 37,535 43,353 51,370 70,915 62,592 63,939 73,776

Gross PP&E 500,000 520,000 540,800 585,552 631,294 678,066 725,908

Other Non Current Assets 25,889 26,666 27,466 28,466 29,666 30,916 32,166
Accumulated Depreciation (167,654) (190,054) (213,406) (236,912) (262,367) (289,818) (319,308)
Total Assets 395,770 399,965 406,230 448,021 461,185 483,103 512,542

Liabilities and Shareholders' Equity

Accounts Payable 2,476 2,426 2,378 2,948 3,311 3,992 4,697
Accrued Expenses and Other Current Liabilities 2,467 2,418 2,369 2,937 3,299 3,978 4,679
Total Current Liabilities 4,943 4,844 4,747 5,885 6,611 7,970 9,376

Secured Debt 24,000 22,000 20,000 18,000 16,000 14,000 12,000

Unsecured Debt 10,000 9,000 8,000 7,000 6,000 5,000 4,000
Total Debt 34,000 31,000 28,000 25,000 22,000 19,000 16,000

Other Non Current Liabilities 10,123 9,921 9,722 12,052 13,539 16,323 19,202
Total Liabilities 49,066 45,765 42,469 42,938 42,149 43,293 44,578

Shareholders' Equity
Authorized Capital of 200,000,000 common shares
of Rs. 1 each
Common stock issued at par 100,000 100,300 100,601 100,601 100,601 100,601 100,601
Additional paid-in capital 234,987 235,692 236,399 236,399 236,399 236,399 236,399
Common stock issued at par to SAS 10,714 10,714 10,714 10,714
Additional paid-in capital by SAS 19,286 19,286 19,286 19,286
Accumulated earnings (deficit) 11,717 18,208 26,761 38,084 52,036 72,810 100,965
Total Shareholders' Equity 346,704 354,200 363,761 405,084 419,035 439,810 467,965

Total Liabilities & Shareholders' Equity 395,770 399,965 406,230 448,021 461,185 483,103 512,542

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Linking Financial Statements

Ensure iterations are enabled in MS Excel

- Hit Alt + T, O and under the Calculations tab check Iteration
Step 22: Calculate Interest Income by incorporating a circular reference from projected cash balances

Income Statement
(Pak Rupees in 000s, except per share amounts) Historical Financials Projected Financials
Revenue 2006 2007 2008 2009 2010 2011 2012
Landing Fees 4,188 4,603 4,990 5,417 6,032 7,425 8,770
Handling Fees 21,670 25,179 28,318 31,593 36,166 45,546 55,380
Embarkation Fees 14,910 17,003 18,663 20,815 23,837 30,028 36,415
Total Operating Revenue 40,768.6 46,784.7 51,971.1 57,826 66,035 82,999 100,565

Non Operating Revenue

Airport Development Fund 9,564 11,478 12,389 13,855 15,822 19,887 24,096
Flying Club 2,000 2,000 2,000 2,487 2,840 3,569 4,325
Rental Income 5,600 6,735 8,353 8,574 9,791 12,307 14,911
Total Revenue Rs.57,932.6 Rs.66,997.7 Rs.74,713.1 82,742 94,488 118,762 143,897

Operating Costs
Staff salaries (9,044) (9,768) (10,549) (12,213) (13,947) (17,530) (21,240)
Maintenance (8,403) (8,874) (9,282) (9,961) (10,739) (11,535) (12,349)
Marketing & Advertising (8,843) (9,506) (10,267) (11,913) (13,605) (17,100) (20,719)
Other Operating Costs (1,200) (1,380) (1,587) (1,675) (1,881) (2,268) (2,668)
EBITDA 30,442 37,470 43,028 46,980 54,316 70,330 86,922

Depreciation & Amortization (21,400) (22,400) (23,352) (23,506) (25,455) (27,451) (29,490)
EBIT 9,042 15,070 19,676 23,474 28,861 42,879 57,432

Interest Expense (3,190) (3,085) (3,020) (2,615) (2,260) (1,865) (1,440)

Interest Income 939 939 939 1,379 1,133 743 629
EBT 6,791 12,924 17,595 22,238 27,734 41,757 56,621

Taxes @ 35% (2,377) (4,523) (6,158) (7,651) (9,660) (14,705) (19,947)

Net Income 4,414 8,400 11,437 14,587 18,074 27,052 36,674
Net Income Margin 7.6% 12.5% 15.3% 17.6% 19.1% 22.8% 25.5%
Interest Income Rate 4.0% 4.0% 4.0% 4.0%

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Table of Contents

1. Overview of Financial Modeling

2. Excel Best Practices
3. Kadmos Modeling Framework
4. Thebes Airport: Situation Overview
5. Income Statement and Operating Model
6. Capital Expenditures and D&A Schedules
7. Debt and Interest Schedules
8. Tax Schedule
9. Financial Model Set Up
10. Working Capital Schedule
11. Shareholders Equity Schedule
12. Linking Financial Statements
13. Introduction to Valuation and Preliminary Returns Analysis
14. Control Page and Sensitivity Analysis

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Introduction to Valuation

Investors employ several valuation methodologies when considering an

investment proposal some examples are as follows
- Comparable Company Analysis
- Comparable Transactions Analysis
- Transaction Premiums Analysis
- Discounted Cash Flow Analysis
- Returns Analysis based on Exit Multiples

Discussion of each method is beyond the scope of this training module

Assume SAS Capital has employed the above methodologies and based on
results they have determined that a 7.7% premium over existing stock price
should be an acceptable to Thebes Airport

Now we are going to determine if such a valuation is consistent with SAS

Capitals expectation on their target Internal Rate of Return or IRR
- IRR is the discount rate which makes the Net Present Value of a project 0

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Returns Analysis Set Up

Set up a returns analysis schedule in a manner which indicates achievable

returns based on exit year and exit Enterprise Value / EBITDA multiple
To arrive at Equity Value from Enterprise Value, subtract existing debt balance
and add back Cash balance

Returns Analysis

Projected Financials
(Pak Rupees in 000s, except per share amounts) 2009 2010 2011 2012
EBITDA Requires Earnings from the Income Statement
Exit EBITDA Multiple Assumtion based on Comparative Analysis
Enterprise Value

Less: Secured Debt Requires Debt & Int. Schedule

Less: Unsecured Debt Requires Debt & Int. Schedule
Plus: Cash Requires Balance Sheet figure
Total Equity Value
Sponsor's Ownership as a % Requires Valuation Consideration Schedule
SAS Equity

Dividend's received by SAS Requires Shareholders' Equity Schedule

SAS Returns

IRR Initial Inv 2009 2010 2011 2012

(30,000.0) 0.0
(30,000.0) 0.0 0.0
(30,000.0) 0.0 0.0 0.0
(30,000.0) 0.0 0.0 0.0 0.0

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Returns Analysis

We have determined that a 7.3x exit EBITDA multiple is reasonable based on

comparables analysis
Based on SAS offer of Rs 2.8 share they are entitled to 9.6% of Thebes Airport
An exit in 2012 at 7.3x EBITDA allows SAS to barely achieve their desired IRR
However, as Buy-Side advisors we must evaluate all possibilities and scenarios
before making a recommendation
Returns Analysis

Projected Financials
(Pak Rupees in 000s, except per share amounts) 2009 2010 2011 2012
EBITDA 46,979.9 54,316.2 70,329.8 86,922.0
Exit EBITDA Multiple 7.3 7.3 7.3 7.3
Enterprise Value 342,953 396,508 513,408 634,531

Less: Secured Debt (18,000) (16,000) (14,000) (12,000)

Less: Unsecured Debt (7,000) (6,000) (5,000) (4,000)
Plus: Cash 34,514 22,081 14,822 16,449
Total Equity Value 352,467 396,589 509,230 634,980
Sponsor's Ownership as a % 9.6%
SAS Equity 33,926 38,172 49,014 61,118

Dividend's received by SAS 319 390 588 803

SAS Returns

IRR Initial Inv 2009 2010 2011 2012

14.1% (30,000.0) 34,244.7
13.9% (30,000.0) 319.1 38,562.3
19.0% (30,000.0) 319.1 389.9 49,602.7
20.7% (30,000.0) 319.1 389.9 588.4 61,920.8

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Table of Contents

1. Overview of Financial Modeling

2. Excel Best Practices
3. Kadmos Modeling Framework
4. Thebes Airport: Situation Overview
5. Income Statement and Operating Model
6. Capital Expenditures and D&A Schedules
7. Debt and Interest Schedules
8. Tax Schedule
9. Financial Model Set Up
10. Working Capital Schedule
11. Shareholders Equity Schedule
12. Linking Financial Statements
13. Introduction to Valuation and Preliminary Returns Analysis
14. Control Page and Sensitivity Analysis

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Control Page and Sensitivity Analysis

The final step of any useful financial model is creating a control page which
drives the output similar to the Operating Model control page we have already
set up
The control page provides a birds eye view of any given situation and involves
re-linking some inputs
Major drivers which would be of interest in the airport example are:
- Revenue Driver Inflation Rates
- Aircraft Movements
- LF Assumptions
- IRR Implications
Financial statement line items which should typically be shown on a control page
are:
- Revenue
- EBITDA
- Net Income
- Cash Balance

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Control Page and Sensitivity Analysis Set Up

Once inputs and drivers are re-linked to the Control Page we can perform a
comprehensive evaluation of the impact a variable can have
Control Page
Aircraft Specifications # of Seats LF Assump. MTOW (Tons) Revenue Driver Inflation Assumptions
B-737-300 Operating Revenue: Assumption: Rate:
A-320 1) Text to be copied from the Operating Model Landing Charges / Ton Annually - Fixed Operating Model
A310 2) Operating Model to be relinked to the Contol Page Handling Charges / AC Movement Annually - Fixed Operating Model
B747 Emarkation Fees / Passenger Annually - Fixed Operating Model

Aircraft Traffic Forecast 2006 2007 2008 2009 2010 2011 2012
Aircraft Movements
B-737-300 1) Text to be copied from the Operating Model
A-320 2) Operating Model to be relinked to the Contol Page
A310
B747

Key Financials Historical Financials Projected Financials

2006 2007 2008 2009 2010 2011 2012
Revenue To be linked to the Income Statement
EBITDA To be linked to the Income Statement
Net Income To be linked to the Income Statement
Cash and Equivalents To be linked to the Balance Sheet
1) To be copied from Valuation Consideration
2) Valuation Consideration to be relinked to Control Page
Investment Amount offered by SAS Capital Exit EBITDA Multiple 1) Copy from Returns Analysis. 2) Returns Analysis to be relinked to Control Page
Offer price / share Sponsor's Ownership a % To be linked to Valuation Consideration Schedule
Current Stock Price
Premium Paid by SAS Capital Partners IRR Initial Inv 2009 2010 2011 2012

Additional Shares Issued To be linked to the Valuation Consideration

Current Shares Outstanding To be linked to the Valuation Consideration
Common shares outstanding post investment To be linked to the Valuation Consideration

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Control Page and Sensitivity Analysis

We can see that an exit in 2012 allows SAS to barely achieve their target IRR
As Buy-Side advisor, would you recommend that SAS invest in Thebes Airport?

Aircraft Specifications # of Seats LF Assump. MTOW (Tons) Revenue Driver Inflation Assumptions
B-737-300 118 0.5% Annually 61 Operating Revenue: Assumption: Rate:
A-320 140 0.8% Annually 73 Landing Charges / Ton Annually - Fixed 7%
A310 184 0.0% Annually 160 Handling Charges / AC Movement Annually - Fixed 9%
B747 398 -0.3% Annually 350 Emarkation Fees / Passenger Annually - Fixed 9%

Aircraft Traffic Forecast 2006 2007 2008 2009 2010 2011 2012
Aircraft Movements
B-737-300 154 160 176 179 188 213 243
A-320 130 156 160 164 174 197 213
A310 65 80 94 100 105 135 156
B747 45 40 37 35 35 35 35

Key Financials Historical Financials Projected Financials

2006 2007 2008 2009 2010 2011 2012
Revenue 57,932.6 66,997.7 74,713.1 82,742.0 94,488.0 118,762.1 143,897.3
EBITDA 30,442 37,470 43,028 46,980 54,316 70,330 86,922
Net Income 4,414 8,400 11,437 14,591 18,078 27,056 36,675
Cash and Equivalents 10,430 14,028 19,970 34,563 22,308 15,037 16,456

Investment Amount offered by SAS Capital 30,000 Exit EBITDA Multiple 7.3 7.3 7.3 7.3
Offer price / share Rs. 2.8 Sponsor's Ownership a % 9.6%
Current Stock Price Rs. 2.6
Premium Paid by SAS Capital Partners 7.7% IRR Initial Inv 2009 2010 2011 2012
14.1% (30,000.0) 34,244.9
Additional Shares Issued 10,714 13.9% (30,000.0) 314.5 38,591.5
Current Shares Outstanding 100,601 19.0% (30,000.0) 314.5 397.2 49,639.5
Common shares outstanding post investment 111,315 20.8% (30,000.0) 314.5 397.2 604.6 61,938.7

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