FORECASTING FINANCIAL STATEMENTS -
Company A reported an income statement and balance sheet as shown below:
Company A | |
Income Statement | |
For the Years Ended | |
2017 | |
Sales | 550.00 |
Cost of sales | 275.00 |
Gross profit | 275.00 |
SG&A | 55.00 |
Depreciation | 60.00 |
Interest | 14.47 |
Pretax income | 145.53 |
Tax | 43.66 |
Net income | 101.87 |
Company A | |
Balance Sheet | |
As of | |
2017 | |
Cash | 60.00 |
Accounts receivable | 5.00 |
Inventory | 8.00 |
Total current assets | 73.00 |
PP&E - gross | 600.00 |
Accumulated depreciation | 200.00 |
PP&E - net | 400.00 |
Total assets | 473.00 |
Accounts payable | 20.00 |
Other current liabilities | 10.00 |
Total current liabilities | 30.00 |
Notes payable | 241.13 |
Total liabilities | 271.13 |
Common stock | 100.00 |
Retained earnings | 101.87 |
Total equity | 201.87 |
Total liabilities and equity | 473.00 |
Use the following assumptions to forecast pro-forma income statement and balance sheets for a 5-year period and a terminal year: (PLEASE SHOW FORMULAS USED TO SOLVE PROBLEM)
(a) Sales increase to $825 in the first year and then increase 20 percent the second year, 15 percent the third year, 10 percent in the fourth year, and 7 percent in the fifth year. Terminal year increases at the assumed growth rate of 4 percent.
(b) Cost of sales is 35 percent of sales.
(c) Sales, general, and administrative expenses are 15 percent of sales.
(d) Depreciation is 8 percent of gross end-of-year property, plant, and equipment.
(e) Interest expense is 5 percent of end-of-year notes payable.
(f) Tax expense is 35 percent of pretax income.
(g) Cash is equal to three month's cost of sales (use current year costs of sales divided by 4).
(h) Accounts receivable has a turnover ratio of 9.0.
(i) Inventory has a turnover ratio of 4.0
(j) Gross property, plant, and equipment gross at the same rate as sales.
(k) Accumulated depreciation increases in Years 1 through 5 by the amount of the current year depreciation. Accumulated depreciation in the terminal year is equal to $711.36
(l) Accounts payable has a turnover ratio of 6.0
(m) Other current liabilities are $35 in Year 1, increasing by $10 in each of Year 2 thorugh 5, and equal to $78.00 in the terminal year.
(n) Notes payable are $498.94 in Year 1, $521.48 in Year 2, $493,56 in Year 3, $401.47 in Year 4, $264.22 in Year 5, and $274.79 in the terminal year
(o) Common stock is remains at $100 in Years 1 through 5, increasing to $104 in the terminal year.
(p) Retained earnings increases by the current year net income less dividends of $125 in Year 1, $150.01 in Year 2, $174.99 in Year 3, $200.01 in Year 4, $224.99 in Year 5, and $339.19 in the terminal year.
q) The depreciation add back in the operating cash flow section of the statement of cash flows is equal to the change in accumulated depreciation for the year.
Company A | |||||||
Income Statement | |||||||
For the Years Ended | |||||||
2017 | 2018 | 2019 | 2020 | 2021 | 2022 | Terminal year 2023 | |
Sales | 550.00 | 825.00 | 990.00 | 1,138.50 | 1,252.35 | 1,340.01 | 1,393.62 |
1.50 | (825*120%) | (990*115%) | (1138.50*110%) | (1252.35*107%) | (1340.01*104%) | ||
Cost of Sales | 275.00 | 288.75 | 346.50 | 398.48 | 438.32 | 469.01 | 487.77 |
(825*35%) | (990*35%) | (1138.50*35%) | (1252.35*35%) | (1340.01*35%) | (1393.62*35%) | ||
Gross Profit | 275.00 | 536.25 | 643.50 | 740.03 | 814.03 | 871.01 | 905.85 |
SG&A | 55.00 | 123.75 | 148.50 | 170.78 | 187.85 | 201.00 | 209.04 |
(825*15%) | (990*15%) | (1138.50*15%) | (1252.35*15%) | (1340.01*15%) | (1393.62*15%) | ||
Depreciation | 60.00 | 72.00 | 86.40 | 99.36 | 109.30 | 116.95 | 27.36 |
(900*8%) | (1080*8%) | (1242*8%) | (1366.2*8%) | (1461.83*8%) | (711.36-684) | ||
Interest | 14.47 | 24.95 | 26.07 | 24.68 | 20.07 | 13.21 | 13.74 |
(498.94*5%) | (521.48*5%) | (493.56*5%) | (401.47*5%) | (264.22*5%) | (274.79*5%) | ||
Pretax Income | 145.53 | 315.55 | 382.53 | 445.21 | 496.81 | 539.85 | 655.71 |
Tax | 43.66 | 110.44 | 133.88 | 155.82 | 173.88 | 188.95 | 229.50 |
(35% of Pretax Income) | |||||||
Net Income | 101.87 | 205.11 | 248.64 | 289.39 | 322.92 | 350.90 | 426.21 |
Company A | |||||||
Balance sheet | |||||||
As of | |||||||
2017 | 2018 | 2019 | 2020 | 2021 | 2022 | Terminal year 2023 | |
Cash | 60.00 | 72.19 | 86.63 | 99.62 | 109.58 | 117.25 | 183.21 |
(288.75/4) | (346.50/4) | (398.48/4) | (438.32/4) | (469.01/4) | balancing figure | ||
Accounts Receivable | 5.00 | 91.67 | 110.00 | 126.50 | 139.15 | 148.89 | 154.85 |
(825/9) | (990/9) | (1138.5/9) | (1252.35/9) | (1340.01/9) | (1393.62/9) | ||
Inventory | 8.00 | 72.19 | 86.63 | 99.62 | 109.58 | 117.25 | 121.94 |
(288.75/4) | (346.50/4) | (398.48/4) | (438.32/4) | (469.01/4) | (487.77/4) | ||
Total Current Assets | 73.00 | 236.04 | 283.25 | 325.74 | 358.31 | 383.39 | 460.00 |
PP&E - gross | 600.00 | 900.00 | 1,080.00 | 1,242.00 | 1,366.20 | 1,461.83 | 1,520.31 |
(600*150%) | (900*120%) | (1080*115%) | (1242*110%) | (1366.20*107%) | (1461.83*104%) | ||
Accumulated Depreciation | 200.00 | 272.00 | 358.40 | 457.76 | 567.06 | 684.00 | 711.36 |
(200+72) | (272+86.4) | (358.40+99.36) | (457.76+109.30) | (+567.06+116.95) | given | ||
PP&E - net | 400.00 | 628.00 | 721.60 | 784.24 | 799.14 | 777.83 | 808.95 |
Total Assets | 473.00 | 864.04 | 1,004.85 | 1,109.98 | 1,157.46 | 1,161.22 | 1,268.95 |
Accounts Payable | 20.00 | 48.13 | 57.75 | 66.41 | 73.05 | 78.17 | 81.29 |
(288.75/6) | (346.50/6) | (398.48/6) | (438.32/6) | (469.01/6) | (487.77/6) | ||
Other Current Liabilities | 10.00 | 35.00 | 45.00 | 55.00 | 65.00 | 75.00 | 78.00 |
given | (35+10) | (45+10) | (55+10) | (65+10) | given | ||
Total Current Liabilities | 30.00 | 83.13 | 102.75 | 121.41 | 138.05 | 153.17 | 159.29 |
Notes Payable | 241.13 | 498.94 | 521.48 | 493.56 | 401.47 | 264.22 | 274.79 |
Total Liabilities | 271.13 | 582.07 | 624.23 | 614.97 | 539.52 | 417.39 | 434.08 |
Common Stock | 100.00 | 100.00 | 100.00 | 100.00 | 100.00 | 100.00 | 104.00 |
Retained Earnings | 101.87 | 181.98 | 280.61 | 395.01 | 517.92 | 643.83 | 730.86 |
Total Equity | 201.87 | 281.98 | 380.61 | 495.01 | 617.92 | 743.83 | 834.86 |
Total Liabilities and Equity | 473.00 | 864.04 | 1,004.84 | 1,109.98 | 1,157.45 | 1,161.22 | 1,268.94 |
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