Income Statement Balance Sheet
($ millions) ($ millions)
Sales 32.00 Current assets 16
Costs 28.97 Fixed assets 16
Gross profit 3.03 Total assets 32
Net income 2.00 Current debt 10
Long-term debt 4
Dividends 1.40 Total debt 14
Retained earnings 0.60 Common stock 14
Ret. earnings 4
Total liabilities and equity 32
WHAT DETERMINES GROWTH?
The current financial policy of the Optimal Scam Company includes
Dividend-payout ratio (d) 70%
Debt-to-equity ratio (L) 77.78%
Net profit margin (P) 6.25%
Assets-sales ratio (T) 1
a. Determine Optimal Scam's need for external funds next year.
b. Construct a pro forma balance sheet for Optimal Scam.
c. Calculate the sustainable growth rate for the Optimal Scam Company.
d. How can Optimal Scam change its financial policy to achieve its growth objective?
Computations provided for you.