In: Finance
Stevens Textile Corporation's 2018 financial statements are shown below:
Balance Sheet as of December 31, 2018 (Thousands of Dollars)
Cash | $ 1,080 | Accounts payable | $ 4,320 | |
Receivables | 6,480 | Accruals | 2,880 | |
Inventories | 9,000 | Line of credit | 0 | |
Total current assets | $16,560 | Notes payable | 2,100 | |
Net fixed assets | 12,600 | Total current liabilities | $ 9,300 | |
Mortgage bonds | 3,500 | |||
Common stock | 3,500 | |||
Retained earnings | 12,860 | |||
Total assets | $29,160 | Total liabilities and equity | $29,160 |
Income Statement for January 1 - December 31, 2018 (Thousands of Dollars)
Sales | $36,000 |
Operating costs | 32,440 |
Earnings before interest and taxes | $ 3,560 |
Interest | 460 |
Pre-tax earnings | $ 3,100 |
Taxes (40%) | 1,240 |
Net income | $ 1,860 |
Dividends (45%) | $ 837 |
Addition to retained earnings | $ 1,023 |
Proforma 2019 Income Statement:
Proforma 2019 Balance Sheet:
a). Total assets (in 2019) = 33,534,000
b). AFN = 2019 total assets - 2019 total liabilities and equity
= 33,534,000-31,480,000 = 2,054,000
c). Forecasted line of credit will equal the financing deficit of 2,054,000.
d). If debt is added throughout the year rather than only at the end of the year, interest expense will be higher than in the projections of part a. This would cause net income to be lower, the addition to retained earnings to be lower, and the AFN to be higher. Thus, you would have to add more than 2,054 from new debt.
Dec 31, 2019F 41400 37306 4094 336 Income Statement as of Sales (5) Operating costs (OC) EBIT Interest (0) EBT Taxes @ 40% (T) Net income (NI) Dividends (45%) Addition to retained earnings Dec 31, 2018 2019 Forecast calculation 36000 1.15*2018 Sales 32440(OC 2018/S 2018) *S 2019 3560 S-OC 460 6%*(Notes payable + mortgage bonds) 2018 3100 EBIT-1 1240 40%*EBT 1860 EBT-T 83745%*NI 1023 NI-Dividends 3758 1503 2255 1015 1240