Assume sales grow 40% in 2021 over 2020; the average collection period increases by 9 days in
Question:
Assume sales grow 40% in 2021 over 2020; the average collection period increases by 9 days in 2021 compared to 2020 (360 days in the year), inventory turnover based on sales decreases by 1 in 2021 compared to 2020, Zedo pays a constant percentage of Net Income as a dividend, and 2020 net fixed assets are operating at 90% of capacity.
INCOME STATEMENT | 2020 | 2021 |
Net Sales | $800 | |
Cost of Goods Sold | - 650 | |
EBIT | $150 | |
Interest Expense | -15 | |
EBT | $135 | |
Taxes @ 40% | -54 | |
Net Income | $81 | |
Dividends | $27 | |
Additions to Retained Earnings | 54 | |
BALANCE SHEET – ASSETS | | |
Cash | $50 | |
Accounts Receivable | 80 | |
Inventories | 100 | |
Total Current Assets | $230 | |
Net Fixed Assets | 370 | |
Total Assets | $600 | |
LIABILITIES AND EQUITY | ||
Accounts Payable | $60 | |
Notes Payable | 20 | |
Accruals | 20 | |
Total Current Liabilities | $100 | |
Long-term Debt | 100 | |
Common Stock | 190 | |
Retained Earnings | 210 | |
Total Liabilities and Equities | $600 |
Estimate the following ratios for ZEDO after the first pass for 2021 assuming any additional financing needed is obtained 25% with notes payable and 75% long-term debt. Assume in 2020, short-term interest rates were 3% points less than long-term rates; i.e. if short-term rates are 6%, then long-term rates are 9%. Assume further that rates are expected to remain at those levels in 2021. Finally, any remaining AFN after 1st pass is included in total debt for ratios.
Current Ratio
_____________________
Times Interest Earned Ratio
_____________________
Total Debt Ratio
_____________________
Net Profit Margin
_____________________
Total Asset Turnover
_____________________
DISCUSS THE STRENGTHS AND WEAKNESSES YOU SEE WITH ZEDO.
Financial Accounting
ISBN: 978-0078025549
3rd edition
Authors: J. David Spiceland, Wayne Thomas, Don Herrmann