In: Finance
Pro forma for 2018:
2017: sales = 2.5 million
2018: sales = (expected) 3 mill
Expected net profit margin: 4%
dividends are 50k
Assets= 1.1 mil (50k cash, 250k AR, 550k inventory, 250k net fixed assets)
Liabilities/equity= 1.1 mil ( 300k AP, 75k NP, 150k debt, 575k equity)
NFA must increase 100k, NP to 25k, and 50k in debt. Addi. Financing to come from new debt (debt:asset ratio must stay at or below 1:2)
1. Make a balance sheet for 2018
2. How much addit. Financing do we need?
it is related
2018 (Expected Sales ) = 3,000,000
Expected profit = 0.04 * 3,000,000 = 120,000
Since no dividends are paid entire 120,000 will go towards retained earnings
Balance sheet is as shown below:
NFA (Non- Fixed Assets) will increases by 100 ,000 meaning current asset will Increase by 100,000 to 950,000 from the earlier 850,000 (50K + 250K + 550K)
The fixed assets will remain unchanged at 250,000
Current liabilties wil increase by 25,000 to 400,000 from the earlier 375,000 (300K + 75K).
Debt will increases from 150,000 to 200,000
Equity will have an addition of the 120,000 which is the reatined earnings that we calclated and hence equity will be 575000 +120000 = 695,000
Balance Sheet | Liabilties/Equity | ||
Current Assets | 950000 | Current libaility | 400000 |
Fixed Assets | 250000 | Debt | 200000 |
Equity | 695000 | ||
Total Assets | 1200000 | Total | 1295000 |
AFN | -95000 |
Addit. finance required = -95,000 (Negative)