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Using percentage of sales method

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Fiscal Years
(in millions except shareand per share amounts)
2004 2003 2002 2001 2000
Net Sales $ 8,334 $ 6,141 $ 9,181 $11,933 $11,062
Net Income (loss) $ 811 $519 $(1,245) $(995) $ 424
Earnings (loss) per common share:
Basic $ 5.65 $ 3.84 $ (9.15) $ (6.89) $ 3.50
Diluted $ 4.64 $ 3.07 $ (9.15) $ (6.89) $ 3.45
Cash Dividends declared per common share
$ -- $ -- $ -- $ 0.12 $ 0.48
Shares used in computing earnings (loss) per share (in thousands):
Basic 143,500 135,000 136,000 144,500 121,192
Diluted 174,900 169,000 136,000 144,500 123,047
Cash, cash equivalents, and short-terminvestments
$ 5,426 $ 4,600 $ 3,859 $ 3,945 $ 952
Total Assets $ 6,161 $ 5,289 $ 5,233 $ 6,364 $ 6,231
Long-term Debt $ 300 $ 954 $ 951 $ 949 $ 303
Shareholder's Equity $ 3,104 $ 1,642 $ 1,200 $ 2,058 $ 2,901

Use the above information for selected financial statements for Micro Chip Computer Corporation. Answer questions 1 and 2 below based on the financial data.

1. Determine the year-to-year percentage annual growth in total net sales.
2. Based only on your answers to question #1, do you think the company will hit its sales goal of +10% annual revenue growth in 2005? Determine the target revenue figure, and explain why you do or do not feel that the company can hit this target.

Next, consider Micro Chip's Consolidated Statement of Operations for the year ended September 25, 2004 (click here to download) and answer questions 1 and 2. below.

Consolidated Statements of Operations For the period September 26, 2004 through
September 25, 2004
Sales $8,334.00
Cost of Sales $5,458.00
Gross Margin $2,876.00
Operating expenses:
R & D $525.00
Selling, General, and Administrative $691.00
In-process R & D ---------
Restructuring costs ---------
Total Operating Exp $1,216.00
Operating income $1,660.00
Total interest and other Income net $194.00
Income before provision for Income taxes $1,854.00
Provision for income Taxes (15%) $278.10
Net income $1,575.90

1. Use the Percentage Sales Method and a 20% increase in sales to forecast Micro Chip's Consolidated Statement of Operations for the period September 26, 2004 through September 25, 2005. Assume a 15% tax rate and restructuring costs of 2% of the new sales figure.
2. Discuss your results from question number #1. What assumptions have you made? Do any of your assumptions seem unreasonable?

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Solution Summary

The solution explains how to use the percentage of sales method to forecast an income statement

Solution Preview

1. The year to year growth is shown in the attached file. The Year on Year growth is calculated as (Current Year-Prior Year)/Prior Year. For the year 2001, the % growth in sales is (Sales in 2001-Sales in 2000)/Sales in 2000 or (11933-11062)/11062. The same formula is used to calculate the growth in the other years.

The sales in 2004 are 8334. A 10% growth would mean that the sales would increase by 10% over 2004. 10% of 2004 sales are 10% X 8334=833.4. The sales in 2005 should be 8334+833.4=9167.4. ...

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