The Booth Company's sales are forecasted to increase from $1,000 in 2007 to $2,000 in 2008. Here is the balance sheet for December 31, 2007.
Cash 100 Accts Payable 50
Acc Rec 200 Notes Payable 150
Inventory 200 Accruals 50
Net Fixed assets 500 Long-Term Debt 400
Common Stock 100
Retained earnings 250
Total Assets $1,000 Total Liabilities & Equity $1,000
Booth's fixed assets were used to only 50% of capacity during 2007, but its current assets were at their proper levels. All assets except fixed assets increase at the same rate as sales, and fixed assets would also increase at the same rate if the current excess capacity did not exist. Booth's after-tax profit margin is forecasted to be 5%, and its payout ratio will be 60%. What is Booth's additional funds needed for the coming year?
Current assets are $100 (cash) + $200 (accounts receivable) + $200 (inventory) = $500.
When sales increase from $1,000 to $2,000 the current assets will need to increase to $2,000/$1,000 * $500 = $1,000. This is ...
This solution analyzes the additional funds needed for the incoming year as sales increase.