Balance Sheets Problem 4.4 (slightly revised): The financial statements for R&E Supplies over the period 2014 through 2017 and forecasted for 2018 for R&E Supplies are given below. Supplemental figures: Interest-bearing debt $1,070 $1,010 $960 $910 $2,203 Owners' equity $1,193 $1,392 $1,584 $1,730 $1,813 Invested capital $2,263 $2,402 $2,544 $2,640 $4,016 Principal payment NA -$60 -$50 -$50 Go to the bottom of the balance sheet and answer the questions given there. R&E Supplies, Inc. Income Statements Assets Current assets: Cash and securities Accounts receivable Inventories Prepaid expenses Total current assets Net fixed assets Total assets $671 $551 $644 $1,343 $1,789 $2,094 $1,119 $1,376 $1,932 $14 $12 $15 $3,147 $3,728 $4,685 $128 $124 $295 $3,275 $3,852 $4,980 $412 $2,886 $2,267 $18 $5,583 $287 $5,870 2014 2018F $11,190 $9,400 $1,790 2015 $13,764 $11,699 $2,065 2016 $16,104 $13,688 $2,416 2017 $20,613 $17,727 $2,886 25766 22159 $3,607 $7,472 $280 $7,752 Net sales Cost of goods sold Gross profit Expenses: General, selling, and administrative (SG&A) expenses Net interest expense Earnings before tax Tax Earnings after tax Dividends paid Additions to retained earnings $1,019 $100 $671 $302 $369 $185 $185 $1,239 $103 $723 $325 $398 $199 $199 $1,610 $110 $696 $313 $383 $192 $192 $2,267 $90 $529 $238 $291 $146 $146 $3,092 $220 $295 $128 $167 $83 $83 Liabilities and Owners' Equity Current Liabilities: Bank loan Accounts payable Current portion long-term debt Accrued wages Total current liabilities $50 $50 $50 $1,007 $1,443 $2,426 $60 $50 $50 $5 $7 $10 $1,122 $1,550 $2,536 $50 $3,212 $100 $18 $3,380 $3,736 $760 $150 $1,580 $5,870 $771 $2,203 $150 $1,663 $7,752 $826 Supplemental figures: Earnings before interest and taxes Interest rate (%) Tax rate (%) Dividend payout ratio (%) $806 $619 Long-term debt $960 $910 $860 Common stock $150 $150 $150 Retained earnings $1,043 $1,242 $1,434 Total liabilities and owners' equity $3,275 $3,852 $4,980 *Estimate $515 10.0% 45.0% 50.0% 45.0% 50.0% 45.0% 50.0% 45.0% 50.0% 45.0% 50.0% INSTRUCTIONS: a. In the space provided, calculate R&E's sustainable growth rate in each year from 2015 through 2018 and the "levers of growth". Ratio (formatting) 2014 2015 2016 2017 2018 b. Comparing the company's sustainable growth rate with its actual and projected (for 2018) growth Sustainable growth rate rates in sales over these years, what growth management problems does R&E appear to face over Profit margin, P (%) this period? Retention ratio, R (X) Asset turnover, A (x) c. How did the company cope with these problems? Do you see any difficulties with the way it Financial leverage, T-hat (x) addressed its growth problems over this period? If so, what are they? Sustainable growth rate Actual growth in Sales d. What advice would you offer management regarding managing future growth? Balance Sheets Problem 4.4 (slightly revised): The financial statements for R&E Supplies over the period 2014 through 2017 and forecasted for 2018 for R&E Supplies are given below. Supplemental figures: Interest-bearing debt $1,070 $1,010 $960 $910 $2,203 Owners' equity $1,193 $1,392 $1,584 $1,730 $1,813 Invested capital $2,263 $2,402 $2,544 $2,640 $4,016 Principal payment NA -$60 -$50 -$50 Go to the bottom of the balance sheet and answer the questions given there. R&E Supplies, Inc. Income Statements Assets Current assets: Cash and securities Accounts receivable Inventories Prepaid expenses Total current assets Net fixed assets Total assets $671 $551 $644 $1,343 $1,789 $2,094 $1,119 $1,376 $1,932 $14 $12 $15 $3,147 $3,728 $4,685 $128 $124 $295 $3,275 $3,852 $4,980 $412 $2,886 $2,267 $18 $5,583 $287 $5,870 2014 2018F $11,190 $9,400 $1,790 2015 $13,764 $11,699 $2,065 2016 $16,104 $13,688 $2,416 2017 $20,613 $17,727 $2,886 25766 22159 $3,607 $7,472 $280 $7,752 Net sales Cost of goods sold Gross profit Expenses: General, selling, and administrative (SG&A) expenses Net interest expense Earnings before tax Tax Earnings after tax Dividends paid Additions to retained earnings $1,019 $100 $671 $302 $369 $185 $185 $1,239 $103 $723 $325 $398 $199 $199 $1,610 $110 $696 $313 $383 $192 $192 $2,267 $90 $529 $238 $291 $146 $146 $3,092 $220 $295 $128 $167 $83 $83 Liabilities and Owners' Equity Current Liabilities: Bank loan Accounts payable Current portion long-term debt Accrued wages Total current liabilities $50 $50 $50 $1,007 $1,443 $2,426 $60 $50 $50 $5 $7 $10 $1,122 $1,550 $2,536 $50 $3,212 $100 $18 $3,380 $3,736 $760 $150 $1,580 $5,870 $771 $2,203 $150 $1,663 $7,752 $826 Supplemental figures: Earnings before interest and taxes Interest rate (%) Tax rate (%) Dividend payout ratio (%) $806 $619 Long-term debt $960 $910 $860 Common stock $150 $150 $150 Retained earnings $1,043 $1,242 $1,434 Total liabilities and owners' equity $3,275 $3,852 $4,980 *Estimate $515 10.0% 45.0% 50.0% 45.0% 50.0% 45.0% 50.0% 45.0% 50.0% 45.0% 50.0% INSTRUCTIONS: a. In the space provided, calculate R&E's sustainable growth rate in each year from 2015 through 2018 and the "levers of growth". Ratio (formatting) 2014 2015 2016 2017 2018 b. Comparing the company's sustainable growth rate with its actual and projected (for 2018) growth Sustainable growth rate rates in sales over these years, what growth management problems does R&E appear to face over Profit margin, P (%) this period? Retention ratio, R (X) Asset turnover, A (x) c. How did the company cope with these problems? Do you see any difficulties with the way it Financial leverage, T-hat (x) addressed its growth problems over this period? If so, what are they? Sustainable growth rate Actual growth in Sales d. What advice would you offer management regarding managing future growth