You have an appointment with a loan officer at Regions bank to discuss your companys financing needs.
Question:
You have an appointment with a loan officer at Region’s bank to discuss your company’s financing needs. The banker asked that you prepare a proforma balance sheet and income statement. Below are the year-end’s financial statements. Your sales department is projecting a 47% increase in sales. Days sales outstanding is expected to improve to 50. With respect to inventory and accounts payable, assume that purchases will be 10,200,000 and cash payments will be 10,500,000. You expect your company will invest 2,000,000, net of additional depreciation, to expand its storage capacity and achieve scale earnings. Accordingly, you expect gross profit margins to be 25% in the future. The retention ratio is 60%. Assume interest expense will remain the same. Prepare proforma financial statements and determine the borrowing needs, which will be reflected in the long-term debt. Upload an excel file. Don't forget to include your answer if you need external financing and how much.
December 31, 2019 | |
Cash | 460,000.00 |
Accts receivable | 1,610,000.00 |
Inventory | 2,070,000.00 |
Total current assets | 4,140,000.00 |
Fixed assets | 1,610,000.00 |
Total assets | 5,750,000.00 |
Accounts Payable | 1,380,000.00 |
Long-term debt | 1,150,000.00 |
Total debt | 2,530,000.00 |
Common stock | 1,495,000.00 |
Retained Earnings | 1,725,000.00 |
Total debt & equity | 5,750,000.00 |
- | |
Sales | 9,200,000.00 |
Cost of sales | 7,475,000.00 |
Gross profit | 1,725,000.00 |
Other expenses | 920,000.00 |
EBIT | 805,000.00 |
Interest | 115,000.00 |
EBT | 690,000.00 |
Taxes (40%) | 276,000.00 |
Net income (60% retention) | 414,000.00 |
Financial and Managerial Accounting
ISBN: 978-0132497978
3rd Edition
Authors: Horngren, Harrison, Oliver