Companies often use ratios as a basis for planning. The technique is to assume the business being

Question:

Companies often use ratios as a basis for planning. The technique is to assume the business being planned will achieve targeted levels of certain ratios and then calculate the financial statement amounts that will result in those ratios. The process always starts with a dollar assumption about sales revenue. Forecast the balance sheet for Lambert Co. using the following projected information ($000). Round all projections to the nearest thousand dollars.

Sales ..........$10,000

Cash ..........$500

Accruals .......... $50

Gross margin ........45%

ACP .........42 days

Inventory turns .......7.0*

Total asset turnover ......1.25*

Current ratio .........2.0

Debt: equity ........1:3

Companies often use ratios as a basis for planning. The

Asset Turnover
Asset turnover is sales divided by total assets. Important for comparison over time and to other companies of the same industry. This is a standard business ratio. Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...