Question

George’s Tech, Inc. (GTI) is a new company the start of which has been internally funded. GTI’s owners are projecting significant Sales growth over the next two years, and realize that external funds will be necessary to support that expansion, but they are not sure how much funding will be required. The owners believe that the Additional Funding Needed (AFN) formula and methodology can be adapted to their business model to help them predict asset and funding requirements. Last year’s Sales were $750,000 (the last year which was funded internally). Last year’s ACTUAL Balance Sheet is shown below.

Balance Sheet (in THOUSANDS)

Current Assets and IP                800                Operating Current Liabilities                    400

                                                                        Short Term Bank Loan                              50

                                                                                    Total Current Liabilities               450

                                                                        Personal Loans                                        350

Equipment                               200                Net Equity Contributions                           200

Total Assets                              1,000                Total Liab & Equity                               1,000

Information extracted from GTI Business Plan:

GTI’s has revised its business plan based on an analysis of requirements used to support past Sales; economies of scale and improved efficiencies, market analysis, customer feedback, potential investor inquiries and review of industry standards. GTI’s business is current and intangible asset intensive. To grow Sales and create value, GTI will have to expand staff, invest heavily in marketing and R & D, increase technology capabilities, and finalize an Intellectual Property (IP) development and protection program. The Net Equity Contributions on the Balance Sheet include operating losses to date.

Operational and Asset Projections:

1. By how much will Operating Current Liabilities increase over the two year forecasting period?

2. What is the AGGREGATE Profit or Loss for the 2 year period?

3. If the owners will make an additional $100,000 in Personal Loans during the 2 year period, what is the Total Amount of ADDITIONAL (external) FUNDING NEEDED (AFN) to support the company’s projected sales growth over the next two years?

AFN = Assets/Sales* ∆ Sales—CL/Sales*∆ Sales—NP/Sales*(Total Sales)

4. Prepare a Pro forma Balance Sheet at the end of the 2 year period.

Thank you.

Answer 1

The answer is attached herewith:-