Company: Cochlear Limited (ASX: COH)
Student name: Trinh Hoang Anh Vu
Student ID: 41735765
In this analysis, Cochlear’s income statement and balance sheet are being forecasted using mainly the percentage of sales forecasting, except the following items: Interest expense, Dividend, Loans and borrowings and Accumulated retained earnings. In addition, considering the strong financial position as well as Cochlear is reaching the stage of maturity in its business life cycle, we believe that the company will be able to continue maintaining the stable sale growth of 10% in the future years. As the consequence, the base percentage of sales for each account is estimated by averaging their percentage of sale item in 2010 and 2011 respectively. Since this is only a one year forecasting, we believe that this estimation is sufficient to predict the following year finance. The other exceptional accounts are forecasted as following: * Interest expense:
* It is clearly that interest expense is not driven by the sale growth, instead it depends on the amount of debts that Cochlear have. Thus, it is naïve to forecast interest expense using the percentage of sale. In addition, since we do not have sufficient information about the effective interest rates for Cochlear debt, the interest expense item is being estimated using the percentage of debts. This base forecast is calculated by averaging the percentage of debts of both 2010 and 2011. * Dividends:
* Dividends are estimated using the average of dividend payout rate in 2010 and 2011, since the dividend are paid out depend on Cochlear dividend policy, rather than the percentage of sales. * Loans and Borrowing:
* Analysing the balance sheet in 2010 and 2011, we find that Cochlear has recently lessened its dependence on long term debt and increased the short term debts to finance its business operation. Thus, for this forecast, we estimate that long...