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    Income Statement and Balance Sheets

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    The Optimal Scam Company would like to see its sales grow at 20 percent for the foreseeable future. Its financial statements for the current year are presented below.

    Income Statement ($ millions) Balance Sheet ($ millions)
    Sales
    32.00
    Current assets
    16

    Costs
    28.97
    Fixed assets
    16

    Gross profit
    3.03
    Total assets
    32

    Taxes
    1.03

    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

    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

    Determine Optimal Scam's need for external funds next year.
    Construct a pro forma balance sheet for Optimal Scam.
    Calculate the sustainable growth rate for the Optimal Scam Company.
    How can Optimal Scam change its financial policy to achieve its growth objective?

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    https://brainmass.com/economics/income-distribution/income-statement-balance-sheets-156230

    Solution Preview

    Please see the attached file.

    The Optimal Scam Company would like to see its sales grow at 20 percent for the foreseeable future. Its financial statements for the current year are presented below.

    Income Statement ($ millions) Balance Sheet ($ millions)
    Sales 32.00 Current assets 16
    Costs 28.97 Fixed assets 16
    Gross profit 3.03 Total assets 32
    Taxes 1.03
    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
    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
    Determine Optimal Scam's need for external funds next year.
    Construct a pro forma balance sheet for Optimal Scam.
    Calculate the sustainable growth rate for the Optimal Scam ...

    Solution Summary

    The solution explains how to calculate the amount of external financing needed and prepare proforma financial statements.

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