In this practice, we are
going to make from scratch a DCF financial model for Dangote Cement. (First, I must confess that this will be a little difficult to grasp without the practice file or video explanation. I intend to create a video explanation).
Below is the Income
Statement (Profit and Loss Statement) of Dangote Cement for the years 2010 to
2015
P&L source
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NGN in thousands
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2010
Act
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2011
Act
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2012
Act
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2013
Act
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2014
Act
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2015
Act
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Revenue from sales and services
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202,566
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241,406
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298,454
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386,177
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391,639
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491,725
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Other revenue
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-
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-
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-
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-
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-
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-
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Revenue
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202,566
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241,406
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298,454
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386,177
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391,639
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491,725
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Cost of Goods Sold
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(84,917)
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(97,708)
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(118,304)
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(142,517)
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(143,058)
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(201,808)
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Selling General & Admin Exp.
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(13)
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(9,821)
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(6,380)
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(14,072)
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(25,213)
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(27,468)
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R & D Exp.
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-
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-
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-
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-
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-
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-
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Other Operating Expense/(Income)
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-
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-
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-
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-
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-
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-
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EBITDA
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117,636
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133,877
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173,770
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229,588
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223,368
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262,449
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D&A
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(14,220)
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(16,135)
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(27,621)
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(33,706)
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(36,266)
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(54,626)
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EBIT
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103,416
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117,742
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146,149
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195,882
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187,102
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207,823
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Financial income/expenses
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(2,081)
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(3,963)
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(10,844)
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(6,722)
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(14,902)
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(32,108)
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Extraordinary income
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(0)
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2,238
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343
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1,601
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12,489
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12,579
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EBT
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101,334
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116,017
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135,648
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190,761
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184,689
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188,294
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Taxes
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5,271
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5,398
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9,377
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10,437
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(25,187)
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(6,971)
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Net Income
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106,605
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121,416
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145,024
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201,198
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159,501
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181,323
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And below is the one
for the Balance Sheet.
BS source
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NGN in thousands
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31Dec10
Act
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31Dec11
Act
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31Dec12
Act
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31Dec13
Act
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31Dec14
Act
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31Dec15
Act
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Intangible assets
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PP&E
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285,443
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397,711
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478,092
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581,465
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747,794
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917,212
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Financial assets
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0
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62,142
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56,214
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113,657
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99,823
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27,751
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Fixed assets
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285,443
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459,853
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534,306
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695,123
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847,617
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944,963
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Inventory
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14,865
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14,351
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32,478
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27,667
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42,688
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53,118
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Trade receivables
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11,378
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1,926
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3,408
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6,670
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4,223
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6,234
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Other assets
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69,077
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27,518
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43,584
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44,464
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69,600
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65,836
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Cash and equivalents
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21,277
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22,836
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44,425
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70,502
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20,593
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40,792
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Non fixed assets
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116,597
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66,631
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123,895
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149,303
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137,104
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165,980
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Total Assets
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402,040
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526,483
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658,201
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844,425
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984,721
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1,110,943
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NGN in thousands
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31Dec10
Act
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31Dec11
Act
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31Dec12
Act
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31Dec13
Act
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31Dec14
Act
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31Dec15
Act
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Share Capital & Minority
Interest
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50,176
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61,599
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61,061
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58,856
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57,988
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47,592
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Reserves
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-
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-
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-
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-
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-
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-
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Retained earnings
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161,334
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229,246
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345,665
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496,456
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537,751
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620,501
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Comprehensive Inc. and Other
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-
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(474)
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(2,190)
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(5,218)
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(3,853)
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(23,373)
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Total Equity
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211,509
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290,371
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404,536
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550,093
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591,886
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644,720
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Trade payable
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5,163
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5,824
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18,279
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23,433
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34,535
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44,044
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Short term loans
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37,637
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34,963
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51,697
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56,289
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110,640
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47,275
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Current deferred taxes
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3,197
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4,282
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2,505
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566
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2,481
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1,289
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Other Current liabilities
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43,863
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70,758
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63,550
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84,478
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85,292
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108,090
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Long term loans
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98,251
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116,766
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112,462
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124,850
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131,942
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208,329
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Other Financial liabilities
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2,419
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3,519
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5,172
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4,715
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27,944
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57,196
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Total Liabilities
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190,531
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236,113
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253,664
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294,332
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392,834
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466,223
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Total Liabilities &
Equity
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402,040
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526,483
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658,201
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844,425
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984,721
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1,110,943
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Those two statements
(Income Statement and Balance Sheet) form the basis of the creation of the DCF
model. The Cash Flow Statement is not needed because we are going to extract out
the Free Cash Flow from those two reports for the future/lifetime of the
company and that is what we need to value the company.
Once those to
statements have been extracted from the company’s historical financial
statement (preferable over past 4 to 6 years), there are just three stages to
preparing the actual DCF model.
The first stage deals
with creating the forecast scenarios, usually three to cater for an optimistic
case, a neutral/base case and a worst case. Then based on knowledge of the
business/company and information from the management on future strategy, you
can make future projections for the key lines in the Income Statement (Profit
and Loss Statement) and the Balance Sheet.
Below is the Profit
and Loss Statement Assumptions I used for Dangote Cement. For Revenues and Cost of Goods Sold the base
case is a moving average of the last five years, the optimistic case is the
base case + 5% and the worst case is the base case – 5%. While for the
Operating Expenses and Depreciation & Amortization, the base case is again
the moving average of the last five years while the optimistic case is the base
case + 1% and the worst case is the base case – 1% (these are actually in the
opposite of the signs as the expenses are originally in negative percentages).
Below is the Balance Sheet assumptions. The average days
it takes for the company to receive payment for buyers after sales is
recorded/invoiced (known as Days Receivables) is computed and the last actual
is projected into the forecast years. Similar calculations are done for Days
Inventory (average number of days the company uses to turn inventory into
actual sales) and Days Payables (the average number of days the company takes
to pay its suppliers).