Question

The Manning Company has financial statements as shown next, which are representative of the company’s historical average. The firm is expecting a 30 percent increase in sales next year, and management is concerned about the company’s need for external funds. The increase in sales is expected to be carried out without any expansion of fixed assets, but rather through more efficient asset utilization in the existing store. Among liabilities, only current liabilities vary directly with sales.

Income Statement
Sales	$	250,000
Expenses		184,800
Earnings before interest and taxes	$	65,200
Interest		8,600
Earnings before taxes	$	56,600
Taxes		16,600
Earnings after taxes	$	40,000
Dividends	$	16,000

Balance Sheet
Assets			Liabilities and Stockholders' Equity
Cash	$	4,000	Accounts payable	$	23,500
Accounts receivable		53,000	Accrued wages		2,000
Inventory		68,000	Accrued taxes		4,500
Current assets	$	125,000	Current liabilities	$	30,000
Fixed assets		96,000	Notes payable		8,600
			Long-term debt		23,000
			Common stock		120,000
			Retained earnings		39,400
Total assets	$	221,000	Total liabilities and stockholders' equity	$	221,000

  

Using the percent-of-sales method, determine whether the company has external financing needs, or a surplus of funds. (Hint: A profit margin and payout ratio must be found from the income statement.) (Do not round intermediate calculations.)
  

Answer 1