Refine Assumptions for Dividend and Retained Earnings
Forecast
Provided below is FY2016 information for Medtronic PLC.
Medtronic plc | ||
---|---|---|
Consolidated Statement of Income | ||
($ millions) | Apr. 29, 2016 | |
Net sales | $29,277 | |
Costs and expenses | ||
Cost of products sold | 9,142 | |
Research and development expenses | 2,224 | |
Selling, general, and administrative expense | 9,469 | |
Special charges (gains), net | 70 | |
Restructuring charge, net | 290 | |
Certain litigation charges, net | 26 | |
Acquisition-related items | 283 | |
Amortization of intangiable assets | 1,931 | |
Other expense, net | 107 | |
Operating profit | 5,735 | |
Interest expense, net | 955 | |
Income from operations before income taxes | 4,780 | |
Provision for income taxes | 908 | |
Net income | $3,872 |
Medtronic plc | |||
---|---|---|---|
Consolidated Balance Sheet | |||
($ millions) | Apr. 29, 2016 | Apr. 24, 2015 | |
Current assets | |||
Cash and cash equivalents | $2,975 | $4,942 | |
Investments | 9,758 | 14,637 | |
Accounts receivable | 5,562 | 5,112 | |
Inventories | 3,473 | 3,463 | |
Tax assets | 697 | 1,335 | |
Prepaid expenses and other current assets | 1,234 | 1,454 | |
Total current assets | 23,699 | 30,943 | |
Property, plant, and equipment, net | 4,940 | 4,798 | |
Goodwill | 41,500 | 40,530 | |
Other intangiable assets, net | 26,899 | 28,101 | |
Long-term tax assets | 1,383 | 774 | |
Other assets | 1,559 | 1,737 | |
Total assets | $99,980 | $106,883 | |
Current liabilities | |||
Short-term borrowing | $1,092 | $2,533 | |
Accounts payable | 1,709 | 1,610 | |
Accrued compensation | 1,712 | 1,611 | |
Accrued income taxes | 566 | 935 | |
Deferred tax liabilities | - | 119 | |
Other accrued expenses | 2,185 | 2,464 | |
Total current liabilities | 7,264 | 9,272 | |
Long-term debt | 30,247 | 33,752 | |
Long-term accrued compensation | 1,759 | 1,535 | |
Long-term accrued income taxes | 2,903 | 2,476 | |
Long-term deferred tax liabilities | 3,729 | 4,700 | |
Other long-term liabilities | 1,916 | 1,819 | |
Total liabilities | 47,818 | 53,554 | |
Shareholders' equity | |||
Ordinary shares | - | - | |
Retained earnings | 54,030 | 54,513 | |
Accumulated other comprehensive (loss)/income | (1,868) | (1,184) | |
Total shareholders' equity | 52,162 | 53,329 | |
Total liabilities and shareholders' equity | $99,980 | $106,883 |
a. Use the financial statements along with the additional
information below to forecast retained earnings for
FY2017.
Forecasted net income | $4,987 million |
Dividends to shareholders' in FY2016 | 2,172 million |
Forecasted retained earnings $Answer
million
b. Suppose the MD&A section of the Form 10-K and additional
guidance from the company reveals the following additional
information.
2017 Est. | 2016 Actual | 2015 Actual | |
---|---|---|---|
Dividends per share | $1.73 | $1.52 | $1.22 |
At FY2016 year-end (April 29, 2016), the company had approximately
1,400 million shares issued and outstanding. Use this information
to refine your forecast of retained earnings for FY2017.
Forecasted retained earnings $Answer
million
Solution:
a)Calculation of retained earning for the FY 2017
dividend Payout ratio in FY 2016=(Dividend/Net Income)*100
=($2,172/$3,872)*100
=56.10%
Forcasted dividend for FY 2017=Net Income*Dividend Payout ratio
=$4,987 million*56.10%
=$2,797.71 million
Retained Earning For FY 2017=Net Income-Dividend for 2017
=$4,987 million-$2,797.71 million
=$2,189.29 million
b)Calculation of Revised forecasted retained earning for FY 2017
Assuming same no. of shares outstanding in 2017.
Dividend for 2017=$1.73*1400 million=$2,422 million
Retained Earning=Net Income-Dividend
=$4,987 million-$2,422 million
=$2,565 million
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