Case Study

Mr. Michael, financial analyst, completed the ratio analysis for the financial statements of Corpo Corp., Mr. Tony, The General Manager approached him about planning for next years sales. The company had historically used little planning for investment needs. As a result, the company experienced some challenging times because of cash flow problems. The lack of planning resulted in missed sales, as well as periods when Tony was unable to draw salaries. To this end, he would like Michael to prepare a financial plan for the next year so the company can begin to address any outside investment requirements.

The income statement and balance sheet are shown here:

1. Calculate the internal growth rate and sustainable growth rate for Corpo&Corp. What do these numbers mean?
2. Corpo&Corp is planning for a growth rate of 12 percent next year. Calculate the EFN for the company assuming the company is operating at full capacity.

CORPO&CORP 2021 Income Statement Sales Cost of Goods Sold Other expenses Depreciation EBIT Interest Taxable Income Taxes (21%) Net Income Dividends 565,000 Ass to retained earnings 1,289,232 $37,038,492 27,629,530 4,696,692 1,659,882 $3,052,388 580,078 2,472,310 618,078 1,854,232 Current Assets Cash Accounts receivables Inventory Total Cash Assets 8,54,685 1,951,642 CORPO&CORP 2021 Balance Sheet Current Liabilities 4,19,970 Accounts Payable 6,74,475 Notes payable 9,88,129 2,082,574 Total Current Liabilities Long term debt 16,305,556 Shareholder Equity Common Stock Retained Earnings Total Equity 18,388,130 Total Liabilities and Equity 2,806,327 5,100,000 Fixed Assets Net Plant and Equipment 4,10,000 10,071,803 10,481,803 18,388,130 Total Assets