Question

Figure 1

BMD, Inc. Income Statements (in 000s)

                                                                          Current       Pro-Forma

                                                                                         Year          Statements

	2017	2018	2019		2020	2021	2022
Net sales (all credit)	$797	$2,893	$3,679		$5,138	$7,392	$9,953
Cost of goods sold	278	981	1021		1582	2154	3685
Gross profit	519	1912	2658		3556	5238	6268
Selling and admin expenses	602	644	876		1387	2120	2597
Other income (expenses)*	0	0	0		700	0	0
Operating profit	-83	1268	1782		2869	3118	3671
Interest expense	13	47	56		194	201	243
Income before taxes	-96	1221	1726		2675	2917	3428
Income taxes	0	488	432		669	729	857
(40% in 2018; 25% thereafter)
Net income	($96)	$733	$1,295		$2,006	$2,188	$2,571
Dividends paid	0	0	0		0	0	0
Increase in retained earnings	($96)	$733	$1,295		$2,006	$2,188	$2,571
Average number of shares**	2326	2326	2347		2347	2347	2347
Earnings per share	($0.04)	$0.31	$0.55		$0.85	$0.93	$1.10
*Other income (expenses) refers to extraordinary gains and losses. In 2020 $700,000 is expected in
settlement of their suit - no final agreement yet.
**Shares are not publicly traded.

1.        Growth will be an important topic of discussion, and everyone will want to know about sales and profitability forecasts. What were the company’s rate of sales growth (%) and the rate (%) of net income growth in 2019? What are the rates of both sales and net income growth forecasted to be in each of the Pro-Forma years (2020, 2021, and 2022)?

Answer 1

Solution:

1.

	2017	2018	2019		2020	2021	2022
Net sales (all credit)	$797	$2,893	$3,679		$5,138	$7,392	$9,953
Net income	($96)	$733	$1,295		$2,006	$2,188	$2,571

Sales growth rate in 2019 = Sales in 2019 / sales in 2018 - 1 = $3,679 / $2,893 -1 =  27.17%   

Net Income growth rate in 2019 = NI in 2019 / NI in 2018 - 1 = $1295 / $733-1 = 76.67%   

Similarly for 2020, 2021 and 2022

In order to find the growth take the current year data and divide it by previous year data.

Growth 2020

Sales growth = 5138 / 3679 - 1 = 39.66%

Net Income growth =2006/1295- 1 = 54.90%

Growth 2021

Sales growth = 7392/5138- 1 = 43.87%

Net Income growth =2188/2006 - 1 = 9.07%

Growth 2022

Sales growth = 9953/7392- 1 = 34.65%

Net Income growth =2571/ 2188 - 1 = 17.50%