Module IV· Operating ForecastIntermediate
Question
Worked example, MidCap Machinery Inc: LTM sales $200m, EBITDA margin 18%. Forecast: 5% sales growth p.a., margin to 22% through operational excellence over 5 years. Calculate Year 5 EBITDA.
Answer
Worked example
MidCap Machinery Inc, LTM sales $200m, EBITDA margin 18%, forecast 5% sales growth, margin to 22% over 5 years.
Deep diveShow more details
Mechanics
| Item | LTM | Year 5 | Calculation |
|---|---|---|---|
| Sales | $200.0m | $255.3m | 200 × 1.05^5 |
| EBITDA margin | 18% | 22% | +400bps margin expansion |
| EBITDA | $36.0m | $56.2m | 255.3 × 22% |
| Total growth | — | +56% | over 5 years |
Consequence
The 56% EBITDA growth breaks down into ~28pp from sales volume and ~28pp from margin expansion (mix effect ~0). That is a 9.4% CAGR — at the top end for middle-market machinery, plausible only with a clear operational-excellence plan.
Pitch tip
At 9%+ EBITDA CAGR, immediately ask 'Where does the margin expansion come from?' — typical sources: procurement synergies (−2–3% COGS), headcount cost reduction (−1–2% SG&A), pricing power (+0.5–1% sales). Anyone who writes a 22% margin into the forecast without justification hasn't thought the pitch book through.