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The change in the conditions making the economy in the year two thousand and nine to a certain bit of two thousand and ten have negatively affected IGM Financial Inc. This has been due to high unemployment rate that has let too low demand for the goods and services provided by the firm. This was also due top other factors that are beyond the companies management. They entail but not limited to, foreign exchange rates, the international relations, global equity, we have funding risks and interest rates on borrowed funds among other factors. However the funds raised from various ventures including the issuance of debentures worthy $ 375 million, and the giving out of the preferred stocks in two thousand and nine was a clear indicator of the availability of funds for carrying out its investment activities. The redemption of the preference shares also indicated that there would be a reduction in the interest expenses to be paid out. The net income generally decreased from $730.8 to $113.9 million at the year end as the gross revenue generally decreased from $2.31 billion to $2.67 billion as was reported by ( IGM financial Inc. reports for 2009 earnings); given the positive information. But given the general growth in most of the factors in 2010 as compared to 2009 I i.e. Gross revenues, Net income, Earnings per share, I predict a positive growth rate of 5% that shall be used in the evaluation model.
There are the forecasted financial statements on the next page
The numbers have continued to grow from year to another due to the following assumptions
I. All the factors affecting the industry shall remain constant hence the rate of growth shall remain at 5%. The justification is that they are only the new changes that will impact on the growth rate either negatively or positively.
II. The rate of growth shall always remain constant. For this reason the figures shall increase at the stated rate of 5%.
Below is a the forecasted financial statements
Income statement
| Fee and net investment income | ||||||||||
| Management | $1,646,636 |
1728967.80 |
1815416 |
1906187 |
2001496 |
|||||
| Administration |
346,020 |
363321.00 |
381487.1 |
400561.4 |
420589.5 |
|||||
| Distribution |
257,427 |
270298.40 |
283813.3 |
298004 |
312904.2 |
|||||
| Net investment income and other |
62,297 |
65411.90 |
68682.5 |
72116.62 |
75722.45 |
|||||
| Total Fee and net investment income |
2,312,290 |
2427904.50 |
2549300 |
2676765 |
2810603 |
|||||
| Operational expenses | ||||||||||
| Commission expense |
808,482 |
848906.10 |
891351.4 |
935919 |
982714.9 |
|||||
| Non-commission expense |
614,222 |
644933.10 |
677179.8 |
711038.7 |
746590.7 |
|||||
| Interest expense |
109,864 |
115357.20 |
121125.1 |
127181.3 |
133540.4 |
|||||
| Total operating expenses |
1,532,568 |
1609196.40 |
1689656 |
1774139 |
1862846 |
|||||
| Income before income tax |
779,722 |
818708.10 |
859643.5 |
902625.7 |
947757 |
|||||
| Income taxes |
220,630 |
231661.50 |
243244.6 |
255406.8 |
268177.1 |
|||||
| Net income |
559,092 |
587046.60 |
616398.9 |
647218.9 |
679579.8 |
|||||
A balance sheet
|
2009 |
2010 |
2011 |
2012 |
2013 |
|
|||||
|
Assets |
||||||||||
| Cash and cash equivalents | $945081 |
992335.1 |
1041952 |
1094049 |
1148752 |
|||||
| Securities |
1246259 |
1308572 |
1041952 |
1094049 |
1148752 |
|||||
| Loans |
671556 |
705133.8 |
740390.5 |
777410 |
816280.5 |
|||||
| Investment in affiliates |
598221 |
628132.1 |
659538.7 |
692515.6 |
727141.4 |
|||||
| Differed selling commissions |
850082 |
892586.1 |
937215.4 |
984076.2 |
1033280 |
|||||
| Other assets |
592908 |
622553.4 |
653681.1 |
686365.1 |
720683.4 |
|||||
| Intangible assets |
1128280 |
1184694 |
1243929 |
1306125 |
1371431 |
|||||
| Good will |
2613532 |
2744209 |
2881419 |
3025490 |
3176764 |
|||||
|
8645919 |
9078215 |
9532126 |
1050363 |
1102881 |
||||||
| Liabilities | ||||||||||
| Deposits and certificates |
907343 |
952710.2 |
1000346 |
1050363 |
1102881 |
|||||
| Repurchasing agreements |
629817 |
661307.9 |
694373.2 |
729091.9 |
765546.5 |
|||||
| Other liabilities |
780329 |
819345.5 |
860312.7 |
380415.3 |
399436 |
|||||
| Future income taxes |
328617 |
345047.9 |
362300.2 |
380415.3 |
399436 |
|||||
| Long term debt |
1575000 |
1653750 |
1736438 |
1823259 |
1914422 |
|||||
| Shareholders equity | ||||||||||
| Share capital | ||||||||||
| Perpetual preferred shares |
150000 |
157500 |
165375 |
173643.8 |
182325.9 |
|||||
| Common shares |
1562925 |
1641071 |
1723125 |
1809281 |
1899745 |
|||||
| Contributed surplus |
32702 |
34337.1 |
36053.96 |
37856.65 |
39749.49 |
|||||
| Retained earnings |
2737785 |
2874674 |
3018408 |
3169328 |
3327795 |
|||||
| Accumulated other comprehensive loss |
-58599 |
-61529 |
-64605.4 |
-67835.7 |
-71227.5 |
|||||
|
4424813 |
4646054 |
4878356 |
5122274 |
5378388 |
||||||
|
8645919 |
9078215 |
9532126 |
10008732 |
10509169 |
||||||
Below is the statement of forecasted the cash flow for five years from 2009 to 2013
| A cash flow forecast statement assuming a 5%growth rate for ING Financial inc. | ||||||||||
| Cash Flow statement | ||||||||||
|
2009 |
2010 |
2011 |
2012 |
2013 |
||||||
| Operating activities | ||||||||||
| Net earnings |
$445,881 |
468175.1 |
491583.8 |
516163 |
541971.1 |
|||||
| Adjustments to determine | ||||||||||
| net cash from operating | ||||||||||
| activities | ||||||||||
| Future taxes |
-19864 |
-20857.2 |
-21900.1 |
-22995.1 |
-24144.8 |
|||||
| Commission amortization |
25591 |
26500.95 |
27826 |
29217.3 |
30678.16 |
|||||
| Amortization of capital |
25239 |
26500.95 |
27826 |
29217.3 |
30678.16 |
|||||
| and intangible assets |
10760 |
11298 |
11862.9 |
12456.05 |
13078.85 |
|||||
| Changes in operating | ||||||||||
| assets and liabilities and other |
687106 |
721461.3 |
757534.4 |
795411.1 |
835181.6 |
|||||
| Commission paid |
-156202 |
-164012 |
-172213 |
-180823 |
-189865 |
|||||
| Financing activities | ||||||||||
| Net increase in deposits and |
-5995 |
-6294.75 |
-6609.49 |
-6939.96 |
-7286.96 |
|||||
| certificates |
-286615 |
-300946 |
-315993 |
-331793 |
-348382 |
|||||
| Repayment of bankers acceptances | ||||||||||
| Net increase in obligations related to | ||||||||||
| assets sold under repurchase agreement |
631258 |
662820.9 |
695961.9 |
730760 |
767298 |
|||||
| Issue of debentures |
375000 |
393750 |
413437.5 |
434109.4 |
455814.8 |
|||||
| Issue of common shares |
24580 |
25809 |
27099.45 |
28454.42 |
29877.14 |
|||||
| Common shares purchased for | ||||||||||
| cancellation |
16200 |
17010 |
17860.5 |
18753.53 |
19691.2 |
|||||
| Perpetual preferred share dividends paid | ||||||||||
| Common share dividends paid |
404300 |
424515 |
445740.8 |
468027.8 |
491429.2 |
|||||
|
317728 |
333614.4 |
350295.1 |
367809.9 |
386200.4 |
||||||
| Investing activities | ||||||||||
| Purchasing of securities |
-1167087 |
-1225441 |
-1286713 |
-1286713 |
-1351049 |
|||||
| Proceeds from the sale of securities |
477611 |
501491.6 |
526566.1 |
552894.4 |
580539.2 |
|||||
| Net increase in loans |
1147325 |
1204691 |
1264926 |
1328172 |
1394581 |
|||||
| Proceeds from securitizations |
1071734 |
1125321 |
1181587 |
1240666 |
1394581 |
|||||
| Net addition to capital assets |
-5581 |
-5860.05 |
-6153.05 |
-6460.71 |
-6783.74 |
|||||
| Net addition to intangible assets |
-4385 |
-4604.25 |
-4834.46 |
-5076.19 |
-5329.99 |
|||||
| Acquisition of non-controlling interest |
-1048 |
-1100.4 |
-1155.42 |
-1213.19 |
-1273.85 |
|||||
|
-776081 |
-814885 |
-855629 |
-898411 |
-943331 |
||||||
| Increase in cash and cash equivalents |
72551 |
76178.55 |
79987.48 |
83986.85 |
88186.19 |
|||||
| Cash and cash equivalent | ||||||||||
| beginning of period |
1232171 |
1293780 |
1358469 |
1426392 |
1497712 |
|||||
| Cash and cash equivalent | ||||||||||
| at end of period |
1304722 |
1369958 |
1438456 |
1510379 |
1585898 |
|||||
Sensitivity analysis
This analysis looks at two scenarios. Here we have the situation where the status remain as it is for now i.e. neutral scenario and secondly if they take a conservative state.
Should the status quo remain then we shall be having a 5% growth rate but if they decide to take a conservative state then it means they won’t be pursuing any new ventures to enhance growth. I recommend that they keep up a status quo scenario so as to continue growing at the rate of 5%. Stock Report. (April 2010). NYS Symbol.
Finding the terminal value
We make an assumption that there will be a constant growth beyond twenty ten. Considering that revenue and capital shall be stable over the same period, we do it as shown below;
Terminal value= FCF (1+g)/ (WACC-g): Where
- FCF is the firm’s cash flow.
- g is the growth rate.
- WACC the firms weighted average cost of capital.
Enterprise value should be found by discounting the firm’s current value and adding it up to the firm’s discounted terminal value.
