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Module 2: Reformulating the Financial Statements

Module 2: Reformulating the Financial Statements. Intercontinental Hotel Group IHG. Julia Lassarat January 22, 2014. Roadmap. Enterprise v. Financial Operations Reformulation NEA v. NFL NEA and NFL Components for IHG IHG Computations EPAT v. FEAT EPAT and FEAT Components for IHG

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Module 2: Reformulating the Financial Statements

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  1. Module 2: Reformulating the Financial Statements Intercontinental Hotel Group IHG Julia Lassarat January 22, 2014

  2. Roadmap • Enterprise v. Financial Operations • Reformulation • NEA v. NFL • NEA and NFL Components for IHG • IHG Computations • EPAT v. FEAT • EPAT and FEAT Components for IHG • IHG Computations

  3. Enterprise v. Finance Operations • Enterprise Operations • Business/production activities • For IHG, the management and leasing of hotels • Financing Operations • Borrowing or lending • For IHG, the purchase or disposal of hotel assets, issuance or repurchase of shares, etc.

  4. What is Reformulation? • The separation of income and net assets between enterprise and finance operations • Permits the forecasting and valuation of the enterprise side of a business • “Is this item associated with the main operations of the company?”

  5. The Balance Sheet: NEA v. NFL • Items under the Assets and Liabilities headings of the Balance Sheet are either Net Enterprise Assets or Net Financing Liabilities • NEA examples: Cash, A/R, Inventory, DTA’s, A/P, DTL’s • NFL examples: Balance of Cash, Borrowing, Preferred Stock

  6. NEA and NFL Components for IHG Cash constituting NEA is 2% of annual sales

  7. NEA and NFL Components for IHG

  8. CSE Components for IHG

  9. IHG Computation of NEA and NFL

  10. EPAT and FEAT Components for IHG Tax Shield from Financial Expenses is added to Tax in EPAT calculation =(3-57)*.37

  11. EPAT and FEAT Components for IHG

  12. IHG Computation of EPAT and FEAT

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