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# Growth rate of sales, SG&A percentage, best profit margin

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2005 2006

Sales 550,000 585,000

Cost of Goods Sold 315,000 335,000

Operating Margin 235,000 250,000

Selling, General and Administrative Expenses 85,000 83,000

Depreciation and Amortization of Goodwill 58,000 55,000

Interest Expense 42,000 41,250

Gross Profit 50,000 70,750

Taxes 7,500 12,735

Net Income (earnings) 42,500 58,015

What is the growth rate of sales?

As a % of Sales, what change did SG&A achieve?

Did the firm change tax brackets from year to year?

What is the best net profit margin for the firm?

#### Solution Preview

What is the growth rate of sales?

Growth rate in sales = (585,000-550,000)/550,000 = 6.36%

As a % of Sales, what change did SG&A achieve?

In the year 2005, SG&A as a percentage of sales ...

#### Solution Summary

The solution explains how to calculate the growth rate of sales, SG&A percentage and best profit margin

\$2.19

## Forecasting Modeling Budgeting

Note: This modeling is completely separate from the prior budgeting tasks; no numbers from the scenario or from the budgeting process are to be used, although the scenario itself should be used as background information.

Individual:

- In the Financial Planning Model Excel file, familiarize yourself with the Financial Planning Model and the Instructions for Model to learn how the model works.
- In the Financial Planning Model worksheet, try changing each of the following 8 variables: sales growth percentage rate, percentage of sales from international, percentage sales from strength products, inventory turn, fixed portion of SG&A, variable portion of SG&A, payment terms to vendors, and payment terms from customers.
- When you change each variable, observe what happens to the profit as a percentage of sales, gross profit as a percentage of sales, worst case single period cash flow, and worse case cumulative cash flow.
Examples:

- go from 0% CV to 25% CV
- go from 0% international sales to 10% international
- go from 30 days A/R terms to 60 days A/R terms
- go from 60 days A/P terms to 30 days A/P terms
For each, explain:

- Profit as percentage of sales goes from _____to______
- Gross profit goes from _____to______.
- Worst case single period cash flow goes from _____to______.
- Worst case cumulative cash flow goes from _____to______.
- Then change 2â?"3 variables at a time; like growth rate and percentage of sales from international sales; or payment terms to vendors and payments from customers. Make the same observations.
- Summarize your observations in a 300â?"word paper containing a list of variable changes and the subsequent effects.

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