This is from the Annual Report of Century Textiles and Industries Limited for the year 2008-09

Rs. In Crores
2008-09
A CASH FLOW FROM OPERATING ACTIVITIES:

Profit For The Year Before Taxation : 346.95

Add / (Less) :
Depreciation and Amortization 206.42
(Surplus) / Loss on sale / discardment of Fixed Assets (Net) -54.09
Interest and Finance charges (Net) 97.2
Dividend on Investments -2.74
Proportionate amounts written off against Miscellaneous Expenditure 99.99
Prior Period Adjustments (Net) -0.71

Operating Profit Before Working Capital Changes 693.02

Adjustments for :
Trade and other receivables -4.76
Inventories -57.69
Trade Payables 107.55

Cash Generated From Operations 738.12

Add / (Less) :
Voluntary Retirement Compensation -16
Direct Taxes Paid -48.32

Net Cash Generated From Operating Activities 673.8

B CASH FLOW FROM INVESTING ACTIVITIES :

Purchase of Fixed Assets (Includes Borrowing Costs Capitalized) -892.33

Sale of Fixed Assets 72.37
Interest Received 6.59
Dividend on Investments 2.74
Long term Investments Acquired -18.84
Current Investments Acquired -798.67
Current Investments Sold 798.67

Net Cash Used in Investing Activities -829.47

C CASH FLOW FROM FINANCING ACTIVITIES :

Working Capital and Short Term Borrowings -37.93

Repayment of Other Borrowings -368.64
Other Loans taken 748.08
Interest and Finance Charges paid -117.89
Dividend Paid -41.78
Tax on Dividend -7.12

Net Cash Generated From Financing Activities 174.72

 NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS 19.05

Cash and Cash equivalents - Opening balance 46.64

Cash and Cash equivalents - Closing balance 65.69

CALCULATION OF FCFF FOR THE CURRENT YEAR FROM THE ABOVE

Net cash generated from Operating activities

Add / Less Net cash used in Investing activities

Free Cash Flow to Firm

CALCULATION OF FCFE FOR THE CURRENT YEAR FROM THE ABOVE

Net cash generated from Operating activities

Add / Less Net cash used in Investing activities
Add / Less Net Cash generated / used from / in Financing activities :
Net debt borrowed
Interest and finance charges paid
Net Preference shares issued
Prefrence dividend paid including tax on dividend
Equity shares issued (Equity dividend paid is delebrately not included)

Free Cash Flow to Equity holders

for the year 2008-09

Rs. In Crores
2007-08

397.73

170.16
2.88
89.18
-8.1
92.6
-0.5

743.95

-30.91
-138.51
175.08

749.61

-54.35
-110.1

585.16

-694.35
2.37
3.89
8.1
-11.76
-1531.06
1531.06

-691.75

CASH FLOW FROM FINANCING ACTIVITIES :

17.94 Net debt borrowed

-576.49 Preference shares issued
674.95 Interest and Finance charges paid
-100.56 Preference dividend paid including tax on dividend
0 Equity shares issued
0 Equity dividend paid including tax on dividend

15.84
-90.75

137.39
46.64

Valuation of Equity shares using FCFF

Present Value of FCFF including the PV of Terminal Value

Add: Opening Cash and Cash equivalents
Less : Preference shares outstanding including the preference dividend payable to them
Less : Debt outstanding including interest charges payable to them
Value of Equity
Number of Equity shares
Intrinsic value of equity per share is : Value of Equity / Number of Equity shares
 DCF VALUATION

FCFF

Revenue
Operating Margin (%)
Operating Profit
Depreciation
EBIT
Effective Tax Rate (%)
Tax Adjusted EBIT
Add Depreciation
Add Other Non Cash Charges
Less Increase / Decrease in WC Add
Less Capex Add
Free Cash Flow to the Firm Less
Less
Less
+/-

Discounted Free flow for the Operating period

Terminal Value Discounted
Firm Value
Less Total Debt & Pref Capital
Add Transferable Liquid Investments Add
Total Equity Value of the Company
Number of Shares in issue
Intrinsic Value of per share
Current Market Value per share

Weighted Average Cost of Capital

WACC
Cost of Equity
Rf + B (Rm - Rf)
Rf
Beta
Rm
Cost of Equity

Cost of Debt (pre-tax)

Cost of Debt (post-tax)
WACC

Terminal Value (Value driver formula)

Terminal Growth Rate (%)
Terminal Value Discounted
VALUATION

FCFE

Revenue 1
Operating Margin (%) 2
Operating Profit 3
Depreciation 4
EBIT 5
Interest Charges paid 6
EBT 7
Effective Tax Rate (%) 8
EAT 9
Depreciation 10
Other Non Cash Charges 11
Increase / Decrease in WC 12
Capex 13
Pref Dividends Paid 14
Net change in Debt 15
Free Cash Flow to the Equity shareholders 16
17
18
Discounted Free flow for the Operating period 19
Terminal Value Discounted 20
Equity Value 21

Transferable Liquid Investments

Total Equity Value of the Company
Number of Shares in issue
Intrinsic Value of per share
Current Market Value per share

Cost of Equity
Rf + B (Rm - Rf)
Rf
Beta
Rm
Cost of Equity
Terminal Value (Value driver formula)
Terminal Growth Rate (%)
Terminal Value Discounted
GIVEN

Opening Revenue (Rs) 10000

Revenue growth per year 25%
Operating Margin 15%
Depreciation (Rs) 700 per year
Effective Tax Rate 30%
Other non-cash charges (Rs) 500 per year
Inc / Dec in Working Capital (Rs) 300 per year
Capex 2000 in the third year
Pref Div paid per year 1000 per year
Debt raised during the year 700 at the beginning of the 4th year
Cost of Debt 14%
Risk Free rate of Interest 6%
Market Return 16%
Beta of the Stock 1.15
Terminal Growth Rate 2.50%
Debt outstanding 2000
Encashable liquid investments 100
Total equity shares issued by the company 7500
Number of shares in issue 750
Current Market Price
Cash flow projection period 5 years
 A SIMPLE DISCOUNTED CASH FLOW (DCF) MODEL FOR VALUIN

Revenue Growth Rate 25%

Terminal Growth Rate 2.50%
Operating Margin 15%
Tax Rate 30%
Capex Growth as % of incremental revenues 5%
Inc WC as % of incremental revenues 2%
Cost of Debt 12%
Cost of Equity using CAPM 16.80%
Debt Equity Ratio
Weighted Avg Cost of Capital 16.27%
Equity 7500 Rs
No.of Shares at Rs.10 Face Vale per Share 750
Total Capital 100 Rs

FCFF Year 0 Year 1

Revenues 10000.00 17000.00

Operating Margin 0.15 0.15
EBIT 1500.00 2550.00
Taxes 450.00 765.00
EBIT(1-t) 1050.00 1785.00
+ Depreciation+Other non cash charges 1200.00 1200.00
- Capital Expenditures 0.00 0.00
- Chg WC 300.00 300.00
Free Cash Flow to the Firm (FCFF) 1950.00 2685.00

Present Value of FCFF 2309.28

The Valuation
PV of FCFF during growth phase = 13232.67
PV of Terminal Value = 23914.76
Value of Operating Assets of the firm = 37147.43
Value of Cash & Non-operating assets= 100
Value of Firm = 37247.43
- Value of Outstanding Debt = 2000
Value of Equity = 35247.43
Value of Equity per share = 47.00
W (DCF) MODEL FOR VALUING A SHARE FCFF

Risk Free Rate of Return 6.00%

Market Return 15%
Beta of the Stock 1.2

Value of Equity Per Share 47.00

Year 2 Year 3 Year 4 Year 5 Terminal Year FCFE

28900.00 36125.00 45156.25 56445.31

0.15 0.15 0.15 0.15
4335.00 5418.75 6773.44 8466.80
1300.50 1625.63 2032.03 2540.04 Earnings after Tax
3034.50 3793.13 4741.41 5926.76 +Depreciation
1200.00 1200.00 1200.00 1200.00 -Capital Expenditures
0.00 2000.00 0.00 0.00 -Chg WC
300.00 300.00 300.00 300.00 +Net Debt Issued
3934.50 2693.13 5641.41 6826.76 50816.46 Free Cash Flow to the

2910.41 1713.38 3086.86 3212.74 23914.76 PV of FCFE

PV of FCFE during gro

PV of Terminal Value
Value of Operating Ass
Value of Cash & Non-o
Value of Equity
Value of Equity per sha
Earnings after Tax
+Depreciation
-Capital Expenditures

+Net Debt Issued

Free Cash Flow to the Equity Shareholders (FCFE)

PV of FCFE

PV of FCFE during growth phase

PV of Terminal Value
Value of Operating Assets of the firm
Value of Cash & Non-operating assets
Value of Equity
Value of Equity per share
 date : 31-Aug-10 basis : 0 freq : 2
security maturity coupon price ytm curr. Yld Mod Dur Duration

7.55% goi 2010 #VALUE! 7.55% 98.65 ### 7.65% #VALUE! #VALUE!
9.39% goi 2011 #VALUE! 9.39% 107.43 #VALUE! 8.74% #VALUE! #VALUE!
7.40% goi 2012 3-May-12 7.40% 97.05 9.33% 7.62% 1.44 1.57
7.27% goi 2013 #VALUE! 7.27% 95.80 #VALUE! 7.59% #VALUE! #VALUE!
7.37% goi 2014 #VALUE! 7.37% 95.72 #VALUE! 7.70% #VALUE! #VALUE!
7.59% goi 2016 #VALUE! 7.59% 96.31 #VALUE! 7.88% #VALUE! #VALUE!
8.07% goi 2017 #VALUE! 8.07% 99.64 ### 8.10% #VALUE! #VALUE!
7.49% goi 2017 #VALUE! 7.49% 95.26 #VALUE! 7.86% #VALUE! #VALUE!
6.25% goi 2018 #VALUE! 6.25% 85.40 #VALUE! 7.32% #VALUE! #VALUE!
6.05% goi 2019 #VALUE! 6.05% 82.20 #VALUE! 7.36% #VALUE! #VALUE!
6.35% goi 2020 #VALUE! 6.35% 84.20 ### 7.54% #VALUE! #VALUE!
7.94% goi 2021 #VALUE! 7.94% 115.35 #VALUE! 6.88% #VALUE! #VALUE!
10.25% goi 2021 #VALUE! 10.25% 115.35 #VALUE! 8.89% #VALUE! #VALUE!
10.18% goi 2026 #VALUE! 10.18% 116.50 #VALUE! 8.74% #VALUE! #VALUE!
7.95% goi 2032 #VALUE! 7.95% 94.10 #VALUE! 8.45% #VALUE! #VALUE!
8.33% goi 2036 #VALUE! 8.33% 98.15 #VALUE! 8.49% #VALUE! #VALUE!

YIELD 7.9349% PRICE 106.3004 DURATION 3.3474 Yrs

Dt of Trade 31-Aug-10 Dt of Trade 31-Aug-10 Dt of Trade 31-Aug-10

Dt of Maturity 12-Nov-14 Dt of Maturity12-Nov-14 Dt of Maturity 12-Nov-14
Coupon 11.83% Coupon 11.83% Coupon 11.83%
Price 113.65 Yield 9.9471% Yield 9.9471%
100 100 100 100 Frequency of coupon (2) 2
Freq of coupon (2) 2 Freq of coupon (2) 2 Basis of Acc Int (0) 0
Basis of Accrued Int (0) 0 Basis of Accrued Int (0)0 Term to Maturity 4.20 Years
days years yield price

### ### 8.00% ###

### ### 9.13% ###
118 1.67 5.92% 102.31
### ### 8.13% ###
### ### 8.19% ###
### ### 8.18% ###
### ### 8.12% ###
### ### 9.20% ###
### ### 8.35% ###
### ### 8.43% ###
### ### 8.40% ###
### ### 8.41% ###
### ### 8.37% ###
### ### 8.43% ###
### ### 8.52% ###
### ### 8.50% ###

0.09

0.09

0.08

0.08
Column L
YTM(%)

0.07

0.07

0.06

0.06

0.05
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19
Time Period (Yrs)
 A SIMPLE DISCOUNTED CASH FLOW (DCF) MODEL FOR VALUIN

Revenue Growth Rate 25%

Terminal Growth Rate 5%
Operating Margin 15%
Tax Rate 30%
Capex Growth as % of incremental revenues 5%
Inc WC as % of incremental revenues 2%
Cost of Debt 12%
Cost of Equity using CAPM 16.80%
Debt Equity Ratio 200000
Weighted Avg Cost of Capital 11.20%
Equity 100000 Rs
No.of Shares at Rs.10 Face Vale per Share 10000
Total Capital 100 Rs

FCFE Year 0 Year 1

Revenues 20000.00 34000.00

Operating Margin 0.15 0.15
EBIT 3000.00 5100.00
Interest paid
EBT
Taxes 900.00 1530.00
EAT 2100.00 3570.00
+ Depreciation 500.00 500.00
- Capital Expenditures 0.00 0.00
- Chg WC 300.00 300.00
+/- Net change in debt
- Dividends to Pref shares
Free Cash Flow to the Firm (FCFF) 2300.00 3770.00

Present Value of FCFF 3390.29

The Valuation
PV of FCFE during growth phase = 26089.82
PV of Terminal Value = 183572.05
Value of Operating Assets of the firm = 209661.86
Value of Cash & Non-operating assets= 2000
Value of Equity = #REF!
Value of Equity per share = #REF!
F) MODEL FOR VALUING A SHARE FCFE

Risk Free Rate of Return 6.00%

Market Return 15%
Beta of the Stock 1.2

Value of Equity Per Share #REF!

Year 2 Year 3 Year 4 Year 5 Terminal Year

57800.00 72250.00 90312.50 112890.63

0.15 0.15 0.15 0.15
8670.00 10837.50 13546.88 16933.59

2601.00 3251.25 4064.06 5080.08

6069.00 7586.25 9482.81 11853.52
500.00 500.00 500.00 500.00
0.00 2000.00 0.00 0.00
300.00 300.00 300.00 300.00

6269.00 5786.25 9682.81 12053.52 ###

5069.78 4208.07 6332.60 7089.08 ###

 P/L Summary

Revenue Revenue
EBITDA Less Raw Material
Less Depreciation & Amortization Less Change in Stock
Operating Profit (EBIT) Gross Margin
Less Net interest Less Staff Expenses
Profit Before Tax Less (Other Operating Expenses)
Less Taxation EBITDA
Net Profit Less Depreciation
EBIT
Less Interest
Cash flow Summary Other Income
PBT
Cash flow from operations (essentially EBITDA) Less Tax
Less Capex PAT
Less Dividends Minority Interest
+/- Change in net debt Reported PAT
Less Change in WC

FCFE

Relative Valuation data

EV/ Sales
EV / EBITDA
EV / Invested Capital
PE
P/ Book Value
Raw Material
Change in Stock
Gross Margin
Staff Expenses
(Other Operating Expenses)

Depreciation

Other Income

Minority Interest
Reported PAT
 A SIMPLE DISCOUNTED CASH FLOW (DCF) MODEL FOR VALUING A SHARE

Revenue Growth Rate 25% Risk Free Rate of Return

Terminal Growth Rate 4% Market Return
Operating Margin 15% Beta of the Stock
Tax Rate 30%
Capex Growth as % of incremental revenues 5%
Inc WC as % of incremental revenues 2% Value of Equity Per Share
Cost of Debt 10%
Cost of Equity using CAPM 16.70%
Debt Equity Ratio 20%
Weighted Avg Cost of Capital 14.76%
Equity 80 Rs
No.of Shares at Rs.10 Face Vale per Share 8
Total Capital 100 Rs

FCFF Year 0 Year 1 Year 2 Year 3

Revenues 100.00 125.00 156.25 195.31

Operating Margin 0.15 0.15 0.15 0.15
EBIT 15.00 18.75 23.44 29.30
Taxes 4.50 5.63 7.03 8.79
EBIT(1-t) 10.50 13.13 16.41 20.51
+ Depreciation 5.00 4.50 4.00 5.00
- Capital Expenditures 2.50 1.25 1.56 1.95
- Chg WC 1.00 0.50 0.63 0.78
Free Cash Flow to the Firm (FCFF) 12.00 15.88 18.22 22.77
Terminal year
Present Value of FCFF 13.83 13.83 15.07
Present Value of Terminal year cash flow

The Valuation
PV of FCFF during growth phase = 74.68
PV of Terminal Value = 154.28
Value of Operating Assets of the firm = 228.95
Value of Cash & Non-operating assets= 50
Value of Firm = 278.95
- Value of Outstanding Debt = 20
Value of Equity = 258.95
Value of Equity per share = 32.37
FOR VALUING A SHARE

Risk Free Rate of Return 6.50%

Market Return 15%
Beta of the Stock 1.2

Value of Equity Per Share 32.37

Year 4 Year 5 Terminal Year FCFE

244.14 305.18
0.15 0.15
36.62 45.78
10.99 13.73 Earnings after Tax
25.63 32.04 +Depreciation
5.50 4.00 -Capital Expenditures
2.44 3.05 -Chg WC
0.98 1.22 +Net Debt Issued
27.72 31.77 Free Cash Flow to the Equity Shareholders (FCFE)
307.08
15.98 15.96 PV of FCFE
154.28

PV of FCFE during growth phase

PV of Terminal Value
Value of Operating Assets of the firm
Value of Cash & Non-operating assets
Value of Equity
Value of Equity per share
lders (FCFE)
 FCFF Model

DCF Analysis: WACC Method

Net income (PAT)
Add Interest expense Add
Less Tax effect of interest expense Add
= After-tax interest expense Add
Net operating profit after tax (NOPAT) Add
Add Depreciation Add
Add Amortization Add
Add Deferred taxes (non cash charges) Less
Add Minority interest
Add Income from affiliates Less
Add Other noncash items +/-
Less Changes in net working capital (NWC) +/-

Less Capital expenditures

Other
Free cash flow
Terminal value (EBITDA multiple)
Total free cash flows to capital providers

Valuation
Firm value
Plus: excess cash
Less: debt outstanding
Less: minority interest
Less: preferred stock
Equity value
Value per share

WACC calculation
Debt/market equity
Relevered beta
Ke
WACC
FCFE Model FCFF Model adjusted for leverage of the firm

DCF Analysis: Equity Residual Method DCF Analysis: Adjusted Present Value (for leverage)
Net income (PAT) Net income (PAT)
Depreciation Add Interest Expense
Amortization Less Tax Effect of Interest Expense
Deferred Taxes = After Tax Interest Expense
Minority Interest NOPAT
Income from Affiliates Add Depreciation
Other Non-Cash Items Add Amortization
Changes in Net Working Capital Add Deferred Taxes
Equity Cash Flow from Operations Add Minority Interest
Capital Expenditures Add Income from Affiliates
Change in Debt Add Other Non-Cash Items
Change in Preferred Less Changes in Net Working Capital
Preferred Dividends (includes convertible)
Other Less Capital Expenditures
Other
Residual Cash Flows Unlevered Free Cash Flow
Terminal Value (P/E Multiple) Terminal Value (EBITDA Multiple)
Cash Flows to Common Equity Holders Cash Flows to Capital Providers

Valuation Valuation
Equity Value Unlevered Free Cash Flows
Value per Share Add Debt Tax Shield
Firm Value
Plus: Debt Outstanding Plus: Excess Cash
Plus: Minority Interest Less: Debt Outstanding
Plus: Preferred Stock Less: Minority Interest
Less: Excess Cash Less: Preferred Stock
Firm Value Equity Value
Cost of Equity Calculation Value per Share
Debt/Market Equity
Relevered Beta
Ke
age of the firm

nt Value (for leverage)