Question 4 (Financial Planning and Ratio Analysis) 25 Marks

Consider the following simplified Financial Statement

Income statement

Sales $32,000

Cost of sales 24,400

Net Income 7,600

Balance Sheet

Cash $500 Accounts Receivables 2,000 Inventory 5,000 Net Fixed Assets 7,500 Total Assets 15,000

Accounts payables $1,000 Long term debt 2,000 Equity 12,000 Total Liabilities and Equities 15,000

Required:

1. Create a proforma Income statement (Assume a 10% growth rate)

2. Create a proforma Balance Sheet (Assume a 10% growth rate for assets and liabilities)

3. Calculate the following Ratios from the simplified financial statements above):

1. Profit Margin

2. Return on Assets

3. Return on Equity

4. Current Ratio

5. Quick Ratio