Professional Documents
Culture Documents
Assumptions:
Company Name: CEC Entertainment, Inc.
Historical
Revenue Assumptions: Units: FY10 FY11
Historical
Income Statement: FY10 FY11
Revenue:
Food and Beverage Sales: $ 398.2 $ 388.9
Entertainment and Merchandise Sales: 414.9 427.0
Franchising Fees and Royalties: 4.1 5.3
Total Revenue: 817.2 821.2
Revenue Growth: 0.5%
Operating Expenses:
Store Operating Expenses:
Labor Expenses: 222.3 222.6
Rent Expense: 70.4 75.0
Other Store Operating Expenses: 128.1 126.8
Depreciation and Amortization: 79.7 80.8
Total Store Operating Costs: 500.6 505.3
Other Costs and Expenses:
Advertising Expense: 35.3 35.0
General and Administrative Expense: 50.7 51.9
Asset Impairments: 0.9 2.7
Total Operating Expenses: 587.5 594.8
Sensitivities:
Historical Projected
FY12 FY13 FY14 FY15 FY16 FY17 FY18
13 13 15 16 16 17 17
(6) (5) (5) (6) (6) (7) (7)
(2.7%) 1.3% 1.0% 1.0% 1.0% 1.0% 1.0%
(12.9%) (7.5%) 0.5% 0.5% 0.5% 0.5% 0.5%
Historical Projected
FY12 FY13 FY14 FY15 FY16 FY17 FY18
93.4 90.4
30.9 29.8
124.3 120.1
679.2 701.6
85% 85%
223.6 229.2
75.3 78.5
126.9 131.0
78.8 78.2
504.5 516.8
35.4 41.2
53.4 57.0
6.8 3.1
600.1 618.1
79.1 83.5
9.8% 10.2%
(9.4) (7.5)
69.7 76.0
(26.1) (28.2)
$ 43.6 $ 47.8
37.4% 37.1%
Why Revenue Models / Revenue Projections?
Very common topic in case studies and interviews in IB, PE, HFs, and anything else really.
Can come up in LBO case studies, 3-statement modeling case studies, normal interview questions, etc.
Often, you have enough data to do a MORE in-depth projection than a simple % growth rate assumptions…
but not enough data to do the same on the expense side.
Theoretically, you could just say 2%, 3%, 4%, etc. growth each year and project revenue like that.
Much more credible to say, "We have 50 stores each generating $2 million in annual sales, on average, and
we plan to open 5 new stores per year for the next 5 years - based on that, revenue is expected to be…"
The numbers you get will NOT necessarily be different or "more accurate" - you're still predicting the future!
But at least your numbers will have more real-world support behind them…
Can be done many different ways, but boils down to Units Sold * Average Selling Price, or Total Market Size * % Market Share.
The method you use depends on the available data, the work and research you've done, and what the company discloses.
For this consumer/retail example, it makes the most sense to use a variation on Units Sold * Average Selling Price, since
"market share" is almost impossible to establish for a large and fragmented market like restaurants / kids' restaurants.
Plus, the company discloses lots of information on average sales per store, # of new stores built each year, and the # of
new stores it plans to build each year in the future.
Goal is to show what revenue may look like over the next 3, 5, or even 10 years, under a variety of different scenarios and
assumptions… for example, if the company opens only 10 stores instead of 15 stores, what happens?
Software / Subscription-Based: Use the # of subscribers, average annual subscription, growth rate, and churn rate.
Airlines: Start with Available Seat Miles, calculate segments flown and total # of flights, then make an assumption for the
average % of each flight that's occupied, and the $ per passenger.
Healthcare: Based on the pipeline of drugs/other products… estimate the market size for each drug, its launch date, and the
potential revenue from that drug. And then do the same for entire portfolio.
Retail: Divide it into existing stores vs. new stores and assume an average Sales per Square Foot/Meter, or Sales per Store,
and then make assumptions for new stores opened, stores closed, and how the sales figures change over time.
Step 1: Get the historical data you need - in this case, # of stores opened and closed in prior years, and the average
sales per store type - all taken from the company's filings.
Step 2: Make assumptions for the # of stores opened and closed each year - companies often disclose their plans for
this in their filings, or you can extrapolate from historical data.
Another option is to do your own "channel checks" and ask the company's suppliers, customers, partners, etc… or you
could also look in equity research and see what they do.
Step 3: Assume a growth rate in Sales per Comparable (Existing) Store, and Sales per New Store.
Tough to do with this data - all over the place, so safest just to assume relatively flat growth and make sure we can easily
change this.
Step 4: Calculate Ending Stores each year, with support for sensitivity toggles built in - so we can easily modify assumptions.
Step 5: Now, make similar "post-toggle" calculations for Sales per New Store and Sales per Existing Store.
Step 6: Now, divide the revenue into segments, if applicable… it is very much applicable here! Different margins and a clear
trend in one direction, away from food and beverages and toward entertainment and merchandise!
Step 7: Now, go back and check your numbers, fill in miscellaneous/smaller items, and see how equity research estimates
compare to what you've come up with… and other sources as well.
Go back and tweak as necessary.
What Next?
Try it yourself!
Go pick a company you're interested in, in an industry that's relatively easy to analyze in terms of key drivers, and project
revenue based on what's in their filings.
Doesn't have to be super-complicated - for most companies, it comes down to less than 5 key drivers.
Avoid conglomerates, companies with tons of business lines, or industries that are more complex, such as oil & gas,
commercial banking, etc.
Suggestions: Airlines, technology, consumer/retail, industrials/manufacturing, healthcare is iffy because it can get very
complex to model a company with a huge drug portfolio.
assumptions…
average, and
sting Store.