Download FSAP User Manual

FSAP User Manual
Financial Reporting and Statement Analysis: A Strategic Perspective, 5th Edition
Stickney, Brown and Wahlen
FSAP Objective
FSAP is a user-friendly, adaptable Excel spreadsheet template. FSAP enables the user to upload
(or manually input) financial statement data for a firm, and then perform financial statement
analysis, financial statement forecasting, and valuation. The objective of FSAP is simply to
provide users with a usable template for these computations. The objective of FSAP is not to
provide the critical analytical judgments that are required of the user. The user of FSAP must
provide the careful analysis of whether a firm’s financial statement ratios are improving or
deteriorating. The user of FSAP must think carefully through what the most appropriate forecast
and valuation assumptions should be. FSAP simply provides financial statement analyses and
valuation calculators for the careful analyst to use.
FSAP Structure
FSAP is constructed in four different worksheets within one Excel spreadsheet. We next describe
each of the four worksheets.
1. Data Worksheet
The DATA worksheet can accommodate up to six years of historical financial statement data for a
particular firm. The web site for the textbook (http://stickney.swlearning.com) contains data files
for many of the problems and cases in the book, which the user can upload into FSAP using the
Load Company Data File function on the DATA worksheet menu. In addition, users can enter the
most current year of data to an existing data file by using the Clear Oldest Year and Enter New
Year of Data function on the DATA worksheet menu. Users can also create their own data files by
entering appropriate financial statement amounts in the DATA worksheet and saving the data file
under the firm’s name. Instructions for creating a data file appear later in this user manual. The
menu for the DATA worksheet also contains a function for printing the data file.
2. Analysis Worksheet
The ANALYSIS worksheet calculates a wide array of financial statement analysis ratios, as well as
financial statements expressed relative to common size denominators and in year-to-year rates of
change. The ANALYSIS worksheet also provides a graphic profitability analysis, breaking down
the return on assets and the return on common shareholders’ equity into components for the most
recent three years. The menu for the ANALYSIS worksheet also contains functions for printing the
various analyses.
3. Forecasts Worksheet
FSAP provides the user with a template to build financial statement forecasts extending to as far as
Year +11 in the future. The user must make specific forecast assumptions and program the
FORECAST worksheet to compute the forecast amounts (for example, the user must make specific
sales growth forecast assumptions and program the FORECAST worksheet to use the growth
forecasts to compute future sales amounts). The FORECAST worksheet then captures the forecast
amount in pro forma income statements, balance sheets, and statements of cash flows.
1
4. Valuation Worksheet
FSAP provides valuation estimates using the forecasts developed in the FORECAST worksheet and
the following five valuation models:
 Free Cash Flows for All Debt and Equity Shareholders
 Free Cash Flows for Common Equity Shareholders
 Residual Income
 Residual Income (the Market-to-Book Value approach)
 Dividends
In order for the VALUATION worksheet to compute the value of a firm using these valuation
models, the user must input the appropriate valuation parameters, such as the parameters needed to
compute the equity cost of capital using the CAPM, the inputs necessary to compute the weighted
average cost of capital, the number of shares outstanding, the long run expected growth rate, and
the current share price. The VALUATION worksheet automatically provides sensitivity analysis
for the free-cash flows-based valuation models and the residual income-based models by varying
the assumptions for the equity cost of capital and the long run growth rate across wide ranges.
Suggestions for FSAP Users
Each worksheet contains red flag comments to guide users of FSAP. We provide additional
coaching tips, assuming that users have a working knowledge of Excel. These suggestions simply
help address frequently asked questions related to FSAP.

In the DATA worksheet, the most recent year of financial statement data should appear in
the far right column. The data file should contain one more year of balance sheet data than
income statement and cash flow statement data. The data file need not contain a full six
years of balance sheet data and five years of income statement and cash flow statement data.
Note that shaded areas contain formulas for calculating various totals and subtotals. After
inputting financial statement data for a new data file, the user should click the Calculations
function on the menu to update all totals and subtotals. The user should then check the
accuracy of the data file by clicking on the Data Checks function on the menu. If all
amounts do not equal zero, the user should recheck the amounts entered into the data file to
correct the error. All amounts in the Data Checks section of the DATA worksheet should
be zero before proceeding to use the data file in the ANALYSIS, FORECASTS, and
VALUATION worksheets.

The ANALYSIS worksheet requires that the user first create or load a company data file
into the DATA worksheet and then click on Switch to Analysis Worksheet on the DATA
worksheet menu or on the Analysis tab at the bottom of the worksheet. The menu for the
ANALYSIS worksheet permits the user either to view or to print profitability and risk
ratios, common size statements, and percentage change statements.

Before using the FORECASTS worksheet, the user should load a company data file into the
DATA worksheet. The first three columns of the FORECAST worksheet contain actual
balance sheet and income statement amounts for the company from the DATA worksheet
and various financial ratios from the ANALYSIS worksheet to aid in making forecasts. The
amounts shown for the statement of cash flows in the FORECASTS worksheet contain the
implied amounts that result from changes in balance sheet accounts and will not likely equal
2
the reported cash flows amounts from the company data file. The FORECASTS worksheet
permits the user to build forecasts for each element of the income statement and balance
sheet from Year +1 to Year +11. Forecasts for each financial statement item can be
developed using three rows of the worksheet. The first row, Sales for example, should be
programmed to compute the Sales forecast amounts. In FSAP, the amounts on this row are
highlighted and boldfaced. The first row immediately below the forecast amounts should be
used to input specific forecast assumptions, such as the sales growth rates to be used to
compute the sales forecast amounts. The second row below the forecast amounts should be
used to input brief descriptions and explanations of the forecast assumptions as a reminder
of the assumptions made.

The VALUATION worksheet requires some assumption about the long-run growth rate in
financial statement amounts. The FORECASTS worksheet requires the user to input the
long-run growth rate assumption for Year +11 and beyond. If the user has forecasted
income statement and balance sheet amounts for Year +1 to Year +10, then FSAP computes
valuations for the firm assuming that amounts for Year +10 continue to grow at this longterm growth rate. If the user has forecasted financial statement amounts for a fewer number
of years, such as five years, then the amounts for Year +6 to Year +10 must be programmed
to grow at the long-run growth rate. The easiest way to do this is to edit copy backwards
from the formula in the Year +11 cell for each row to the Year +6 cell for that row.

The FORECASTS worksheet will automatically compute the statements of cash flows
implied by the income statement and balance sheet forecasts. FSAP will also compute
whether the statement of cash flows reconciles with the change in cash on the balance sheet
as a quick check of whether the statements agree with one another.

The FORECASTS worksheet requires the user to plug a flexible financial account to
balance the balance sheet. The default plug account on the balance sheet in FSAP is cash,
but the user can easily change the plug account to an account other than cash, such as
dividends, notes payable, or any other balance sheet account. The user should initially
leave blank the row for the balance sheet account that will be plugged (i.e., initially leave
cash blank). After programming all of the other income statement and balance sheet
accounts (excluding the account to be plugged), the user should scroll to row 191 of the
FORECAST worksheet. This row will indicate the initial amount of the plug needed to
balance the balance sheet. For the balance sheet plug amounts to work properly, the
spreadsheet must be programmed for circular references and calculations. The user should
make sure that this is the case as follows: click on the Tools menu, then click on the Options
menu, then click on the Calculation tab, and then make sure that a check mark appears in
the Iterations box (if the box is blank, click on it, and a check mark should appear.) Row
193 asks the user to name the account to be plugged. Row 194 computes the amount of the
plug needed to balance the balance sheet (initially, this amount will equal the amount in row
191.) The user should input on row 195 the initial amounts in the plug account before
adding the plug amount (as suggested above, these amounts should initially be zero.) Row
196 nets the amounts on rows 194 and 195 to compute the adjustment required to the
plugged account. The user should then program the cells of the plugged account on the
balance sheet to equal the amounts on row 196. The amounts in the check figures row 191
should then be zero.
3

The FORECASTS worksheet plug account can be changed from the cash account (the
default plug), to any other account on the balance sheet. To change the plug account from
cash to long-term debt, for example, the user should program the amounts on row 101 to
equal the cash balance forecasts. The user should initially leave blank the cells in row 151
(for long-term debt). In row 194, the user should program the computation for the necessary
plug to long-term debt by subtracting from total assets the amounts for every liability and
equity account other than long-term debt. To be specific, the amount in the cell in row 194
should be set as follows: (=F131-F148-F154-F157-F185). The user should input on row
195 the initial amounts in the plug account before adding the plug (as suggested above,
these amounts should initially be zero.) Row 196 nets the amounts on rows 194 and 195 to
compute the adjustment required to the plugged account (in this case, long-term debt.) The
user should then program the cells of the plugged account on the balance sheet (long-term
debt, row 151) to equal the amounts on row 196. The amounts in the check figures row 191
should then be zero.

To change the FORECASTS worksheet plug account from cash to dividends, for example,
the user should program the amounts on row 101 to equal the cash balance forecasts. The
user should initially leave blank the cells in row 174 (for the dividend payout ratio forecast).
In row 173, the user should program the retained earnings balance (before the plug to
dividends) to equal the prior year retained earnings balance plus the amount of net income
available to common shareholders (which is equal to net income minus preferred dividends,
row 72 minus row 81). In row 194, the user should program the computation for the
necessary plug to dividends by subtracting from total assets the amounts for every liability
and equity account, including retained earnings (before dividends.) To be specific, the
amount in the cell in row 194 should be set as follows: (=F131-F160-F164-F167-F170D173-F72+F81-F176-F179-F182). The user should input on row 195 the initial amounts in
the plug account before adding the plug (as suggested above, these amounts should initially
be zero.) Row 196 nets the amounts on rows 194 and 195 to compute the adjustment
required to the plugged account (in this case, dividends.) The user should then program the
cells of the plugged account on the balance sheet (the dividends component of retained
earnings, row 173) to include the amounts on row 196 for the plug to dividends (that is, the
amount on row 173 should =D173+F72-F81-F196.) The amounts in the check figures row
191 should then be zero. The text provides a description of the plug to dividends for
PepsiCo, and the FSAP PepsiCo file on the course website provides a specific example of
the computations.

The VALUATION worksheet requires the user to input the appropriate valuation
parameters, such as the parameters needed to compute the equity cost of capital using the
CAPM, the inputs necessary to compute the weighted average cost of capital, the number of
shares outstanding, the long run expected growth rate, and the current share price. The
valuation parameter cells are highlighted in bold blue font at the top of the VALUATION
worksheet. Once the user has completed the forecasts and provided the valuation parameter
assumptions, the VALUATION worksheet will compute the value estimates and sensitivity
analysis computations.

Hyperlink buttons on the menu for each worksheet, as well as tabs at the bottom of the
screen, allow the user to move quickly within each worksheet and across worksheets.
4
Creating a New Data File
This section describes the procedure for creating a new data file for a particular company.
Begin by opening FSAP as described above. The DATA worksheet will appear on the screen. The
cells in columns B through G should be empty. (If not, click on Clear All Data Without Saving.)
The worksheet is now ready to input data for a particular company. Unless instructed otherwise in
the section below, all amounts should be entered onto the Data worksheet as positive amounts.
FSAP automatically converts amounts to negative amounts as appropriate. Enter amounts as they
appear in the company's financial statements, leaving amounts as reported in thousands or millions.
Do not enter amounts in the shaded rows. You can enter data for any number of years you desire,
up to six years. You should enter one more balance sheet than the number of income statements
and statements of cash flows to provide balance sheet amounts at the beginning of the first year
included. Place the most recent year of data in the column at the far right. Particular instructions
for some rows are discussed next. These instructions are also embedded as comments in the labels
for each row in the Data Worksheet.
Rows 7 and 8: Your Name and Company Name. Enter your name and the name of the
company in Column B. These names will appear on the output of FSAP on the ANALYSIS,
FORECASTS, and VALUATION worksheets.
Row 9: Tax Rate. Enter the statutory income tax rate appropriate to deductions for interest
expense. This will generally be the income tax rate applicable to ordinary income and deductions,
which is currently 35 percent in the United States.
Row 19: Accumulated Depreciation. Enter this amount as a positive amount.
Row 36: Accumulated Other Comprehensive Income. The amounts for this line appear
either in the balance sheet or in a separate statement of changes in shareholders’ equity. Amounts
that increase total shareholders' equity should be entered as positive amounts. Amounts that
decrease total shareholders' equity should be entered as negative amounts (use minus sign).
Row 37: Other Equity Adjustments. Firms sometimes report other adjustments to
shareholders’ equity, which should be entered as either positive or negative amounts depending on
their effect on total shareholders’ equity.
Row 38: Treasury Stock. Enter as a positive amount.
Row 43: Other Revenues and Gains. Include on this line equity in earnings of affiliates, gains
on sales of equipment, and other miscellaneous types of revenues and gains. Interest revenue
should appear on line 42.
Rows 46 and 47: Other Expenses and Losses I and II. These lines can be used for expenses
and losses peculiar to a particular company or to a particular year. For example, one line might
include research and development expenses for technology firms. One line might include
restructuring charges for a firm recognizing such charges.
5
Rows 51 to 54: Income Items. These lines include the reported amounts for income from
continuing operations, discontinued operations, extraordinary items, and changes in accounting
principles. Enter as positive or negative amounts as appropriate. The profitability ratios in the
ANALYSIS Worksheet use income from continuing operations on Row 55 for computing ROA,
ROCE, and profit margins.
Row 56: Change in Accumulated Other Comprehensive Income. This line should include
the change in the Accumulated Other Comprehensive Income account (row 36) on the balance
sheet. Enter as positive amounts if the change increases total shareholders' equity and as negative
amounts if the change decreases total shareholders' equity.
Row 57: Preferred Stock Dividend. The statement of changes in shareholders' equity will
usually indicate the amount of any dividend paid on preferred stock. Enter the dividend as a
positive amount.
Row 61: Other Subtractions. Enter as a negative amount.
Rows 63 to 67: Changes in Operating Working Capital Accounts. Use the row labels
descriptions to enter amounts as positive or negative amounts.
Rows 69 and 70: Cash Flows from Discontinued Operations and Extraordinary Gain
(Losses). The statement of cash flows will report amounts for these items if the firm has them.
Enter as positive or negative amounts as appropriate. The ANALYSIS worksheet calculates cash
flow ratios using cash flow from continuing operations on row 68.
Rows 72 to 76: Investing Transactions. Enter as positive amounts, except for Other
Investing Transactions on Row 76, which should include a negative sign if the effect is to reduce
cash flows.
Rows 78 to 85: Financing Transactions. Enter as positive amounts, except for Other
Financing Transactions on Line 85, which should include a negative sign if the effect is to reduce
cash flows.
Row 87: Net Change in Cash. Enter the change in cash and cash equivalents as it appears on
the reported statement of cash flows.
Row 88: Common Shares Outstanding. Enter the number of common shares outstanding at
the end of each year. Be sure to reduce the number of shares issued by the number of any shares
held as treasury stock to arrive at the number of common shares outstanding. The number of
common shares outstanding should be expressed in the same numerical units (for example,
thousand, millions) as the amounts in the financial statements entered in the preceding cells.
Row 89: Market Price per Share. This should be the market price per share on the last day
of the firm's accounting period (usually December 31 of each year).
6
Once you have entered amounts for a particular company, you should click on Calculations on
the Data Worksheet to calculate the various subtotals and totals. You should then click on Data
Checks to be sure that the amounts inputted satisfy certain accounting relationships. When the data
checks appear as all zeros, you can click on Save Current Data. You should then enter in the top
window the location in your computer where you wish to save the data file and in the lower
window the name of the company.
7