Question

The Manning Company has financial statements as shown next, which are representative of the company’s historical average. The firm is expecting a 35 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	$	230,000
Expenses		168,500
Earnings before interest and taxes	$	61,500
Interest		9,500
Earnings before taxes	$	52,000
Taxes		17,500
Earnings after taxes	$	34,500
Dividends	$	13,800

Balance Sheet
Assets			Liabilities and Stockholders' Equity
Cash	$	6,500	Accounts payable	$	22,800
Accounts receivable		42,000	Accrued wages		2,450
Inventory		55,000	Accrued taxes		4,650
Current assets	$	103,500	Current liabilities	$	29,900
Fixed assets		90,000	Notes payable		9,500
			Long-term debt		27,500
			Common stock		110,000
			Retained earnings		16,600
Total assets	$	193,500	Total liabilities and stockholders' equity	$	193,500

  

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