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Projected Income statement for Year Ending Dec 31, 2004 Projected balance sheet at December 31, 2004...

Projected Income statement for Year Ending Dec 31, 2004 Projected balance sheet at December 31, 2004
Amount Assets Amount
Projected sales $3,600 Cash (1.5% of sales) 54
COGS Accounts receivable (12% of sales) 432
Beginning inventory $418 Inventory (16% of sales) 576
Purchases $2,750    Current assets 0
$3,168 PP&E (grow with sales) 210
Ending inventory $576    Total assets 1,272
    COGS (72% of sales) $2,592
Gross profit $1,008 Liabilities
Less: Operating expenses (25% of sales) $900 Notes payable (AFN = plug) 675
Operating income $108 Accounts payable 75
Plus: Purchase discounts (2% of (2750-660)) $42 Accrued expenses 52
Less: Interest $46 Long-term debt - current portion 7
Net income before taxes $90    Current liabilities 852
Provision for income taxes* $19 Long term debt 43
Net income after taxes $71    Total liabilities 844
Net worth 428

* 15% rate on first $50K

 Total liabilities and net worth

1272

What will happen to financing needs for above beyond 2004? How could you get the need to borrow to decline?

Business   Accounting   
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Answer #1

The financing needs for above 2004 will also tend to increase as the company has only 1.5% of sales available for cash. The company has less of current assets as compared to current liabilities leading to liquidity issue. Companies net income after taxes is ony $71 which is 1.97% of the total sales. The company's expenses are more. The company can reduce its borrowing by improving its current asset ratio and by reducing the expenses or increase sales with no increase in expenses.

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