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Projecting NOPAT and NOA Using Parsimonious Forecasting Method

Following are Cisco Systems’ sales, net operating profit after tax (NOPAT), and net operating assets (NOA) for its year ended July 31, 2016 ($ millions).

Use the parsimonious method to forecast Cisco’s sales, NOPAT, and NOA for years 2017 through 2020 using the following assumptions.

for 2017 and

thereafter

Rounding instructions:

Round total revenue "unrounded" to two decimal places.

Round total revenue "rounded", NOPAT and NOA answers to the nearest whole number.

For NOPAT and NOA computations, use total revenue "rounded".

$ millions

Sales $49,247 Net operating profit after tax (NOPAT) 10,575 Net operating assets (NOA) 26,472

Explanation / Answer

Solution:

As per parsimonious method to forecast, forumulas to be used are:

Sales= Previous year sales*(1+growthrate/100)

NOPAT= Current year sales*(NOPM/100)

NOA= Current year sales/NOAT

Note: All the amount are in $ Millions

To calculate NOPAT and NOA, rounded figure of current year sales has been taken

$Milliion 2017 2018 2019 2020 Total revenue (unrounded) 49739.47 50734.26 51748.94 52783.92 Total revenue (rounded) 49739 50734 51749 52784 NOPAT 10694 10908 11126 11349 NOA 26741 27276 27822 28378

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