Question

You have been asked to present in front of investors who are interested in putting large amounts of money into this company. Your goal is to use the data of these financial statements to convince them to do so.   Please provide an analysis on the company’s assets, liabilities, cash, and profit. show any calculations, having a difficult time with this.

Background

• The relationship between cost of goods sold and sales revenue Is expected to continue in the near term and no inflation is expected.
• Operating expenses include $200,000 in depreciation (fixed expense), the remainder is variable costs tied to sales revenue.
• Fixed assets are adequate to support sales growth for the next two years and long=term debt will decline $200,000 per year.
• Dividend policy calls for 40% of net profits after taxes to be paid before yearend.
• Interest is 10% of long-term debt and notes payable
• Inventory needs to grow at half the rate of sales growth and accounts receivable maintains the same relationship to sales as was the case on December 31, 2019 for 2019 sales. Accounts payable maintains the same relationship to cost of good sold as of December 31, 2019 for 2019 sales.
• Any cash over $500,000 is put in marketable securities, Interest income is negligible
• Other current liabilities are stable.
• Taxes payable are equal to one-half of the current year’s taxes
• Assume sales will increase 10% per year for each of the next two years.

  Techno Corp

  Income Statement

  Actual results 2019 for 12 months ending December 31, 2019

  Sales revenue (10,000 units at $250 each)	$2,500,000
  Cost of goods sold ($100 per unit)	($1,000,000)
  Gross profit	$1,500,000
  Operating expenses	($500,000)
  Operating profit	$1,000,000
  Interest expense	($200,000)
  Net profits before taxes	$800,000
  Taxes (30%)	($240,000)
  Net profits after tax	$560,000
  Dividends on common stock	$224,000

  Techno Corp

  Balance Sheet

  December 31, 2019

  ASSETS
  Cash	$500,000
  Marketable securities	$300,000
  Accounts receivable	$500.000
  Inventory	$400,000
  Total current assets	$1,700,000
  Net fixed assets	$2,000,000
  Total assets	$3,700,000
  LIABILITIES AND STOCKHOLDER’S EQUITY
  Accounts payable	$150,000
  Taxes payable	$120,000
  Notes payable (long-term debt due within one year)	$200,000
  Other current liabilities	$200,000
  Total current liabilities	$670,000
  Long-term debt	$1,800,000
  Total liabilities	$2,470,000
  Common stock	$500,000
  Retained earnings	$730,000
  Total liabilities and stockholder’s equity	$3,700,000

Answer 1