Encourage students to use the accompanying financial spreadsheets to analyze this case.

With the financial objectives and assumptions presented below, prepare the following for the company:

a) Projected statement of income for 2014

b) Projected statement of changes in equity for 2014

c) Projected statement of financial position for 2014

d) Projected statement of cash flows for 2014

e) Financial ratios for 2014, comparing them with the 2013 financial results

Also, calculate the following:

f) The company’s 2014 sustainable growth rate

g) The company’s 2014 Z-score

Financial objectives and assumptions:

1. Related to the statement of income:

• Revenue will increase by 10.0%.

• Cost of sales as a percentage of revenue will decline to 51.5%.

• Distribution costs as a percentage of revenue will improve slightly to 10.5%.

• General and administrative expenses will drop to 5.7% of revenue.

• Research and development costs as a percentage of revenue will increase to 2.0%.

• Depreciation/amortization will be $120,000.

• Other income will be $6,000.

• Finance costs will be $35,000.

• Income tax rate (as a percent of profit before taxes) will be maintained at the 2013 level.

2. Related to the statement of changes in equity:

• $50,000 in dividends will be paid to shareholders.

3. Related to the statement of financial position:

a. Non-current asset accounts

• Investment in new capital assets will be $660,000.

• Other assets will be increased by $100,000.

b. Current asset accounts

• Inventories will improve to 4.9 times.

• Trade receivables will improve to 44.9 days.

• Cash and cash equivalents will be 2.0% of revenue.

c. Equity

• Shareholders will invest an additional $200,000 in the business.

d. Non-current liabilities

• Long-term borrowings will increase by $39,700.

e. Current liabilities

• Trade and other payables will increase to 11.31% of cost of sales.

• Notes payable will increase to $268,685.

United Manufacturers Ltd.

Statements of Income

For the year ended December 31

(in $)

United Manufacturers Ltd.
Statements of Financial Position
As at December 31
(in$)

Transcribed Image Text:

Accumulated depreciation/amortization Other assets (intangible) 100,000 Total non-current assets 420,000 48,000 Cash and cash equivalents Total current assets 8 800,000 800,0000 Retained earnings 1,704,500 1,000,000 Non-current liabilities 950,000 140,000 150,000 Total current liabilities 2 Total equity and liabilities