Percent of sales method in pro forma balance sheet
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1. Sales will increase by 25% next year.
2. The following balance sheet items will increase in direct relation to sales:
a. Cash
b. Accounts Receivable
c. Inventory
d. Fixed Assets
e. Accounts Payable
3. Management forecasts that Notes payable will need to increase by $1,000,000 to support the increase in sales.
4. Management forecasts that Earnings after Taxes will be $2,750,000 next year.
5. The company intends to pay the same amount of dividends next year.
Balance Sheet as of December 31, 2005
Assets Liabilities & Equity
Cash $ 1,000,000 Accounts Payable $ 3,000,000
Accounts Receivable 4,000,000 Notes Payable 2,000,000
Inventories 8,000,000 Total Current Liabilities $ 5,000,000
Total Current Assets $13,000,000 Long-Term Debt 1,000,000
Fixed Assets, Net 2,000,000 Stockholder's Equity 9,000,000
Total Assets $15,000,000 Total Liabilities and Equity $ 15,000,000
Income Statement for the Year Ended December 31, 2005
Sales $ 30,000,000
Operating Expenses, Interest and Taxes 28,500,000
Earnings after Taxes $ 1,500,000
Dividends Paid $ 250,000
Financial Ratios
Current Ratio 2.60
Debt Ratio 40%
Return on Stockholder's Equity 16.7%
Net Profit Margin on Sales 5.0%
Balance Sheet as of December 31, 2006
Assets Liabilities & Equity
Cash Accounts Payable
Accounts Receivable Notes Payable
Inventories Total Current Liabilities
Total Current Assets Long-Term Debt
Fixed Assets, Net Stockholder's Equity
Total Assets Total Liabilities and Equity
Income Statement for the Year Ended December 31, 2006
Sales
Operating Expenses, Interest and Taxes
Earnings after Taxes
Dividends Paid
Financial Ratios
Current Ratio
Debt Ratio
Return on Stockholder's Equity
Net Profit Margin on Sales
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Solution Summary
The percent of sales method in pro forma balance sheet, income statement and ratios is determined.
Solution Preview
Please see the attached Excel document. Details on calculations and the relationships between cells are entered in the perspective cells.
Operating Expenses, Interest and Taxes 28,500,000 34,750,000
Earnings after Taxes 1,500,000 2,750,000 ...
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