Question

Use the information about​ Billy's Burgers to answer the following​ question(s): ​ Billy's Burgers Figures in​ $ millions Income Statement 2010 Balance Sheet 2010 Net Sales 246.0 Assets Costs exc. Dep. 187.0 Cash 8.0 EBITDA 59.0 Accts. Rec. 21.0 Depreciation 17.2 Inventories 23.0 EBIT 41.8 Total Current Assets 52.0 Interest 12.0 Net PP​&E 145.0 Pretax Income 29.8 Total Assets 197.0 Taxes 10.4 Net Income 19.4 Liabilities and Equity Accts. Payable 18.0 LongminusTerm Debt 82.0 Total Liabilities 100.0 Total​ Stockholders' Equity 97.0 Total Liabilities and Equity 197.0 Using the percent of sales​ method and assuming​ 20% growth in sales and no change in interest​ expense, estimate​ Billy's Burgers' Net Income for 2011...... Please show all work!

Answer 1

For calculating net income estimated on 2011, first we prepare 2010 income statement

there are some steps

1. Analyze historical ratios that will be used for the projections. The ratios to be used will relate
the various items to sales by dividing each one by sales. Here we calculate the ratio between

a. Ratio between sales and cost

So ratio between sales and cost = cost / sales

= $ 187 / 246 = 0.76 = 76%

2. Forcast the sale by adding 20% to Net sales (growth in sale = 20%)

Estimated net sales on 2011 = 2010 net sale + 20%

= $ 246 + 20% = $ 295.2

3. Using the cost to sales ratio of 76%, find the cost expensed = Estimated sales of 2011 * ratio

cost    = $ 295.2 * 76% = $ 224.352

4. calculate EBITDA = Net sales - cost

= $ 295.2 - 224.352 = $ 70.848

5. for depreciatio we asssume it is manufacturing depreciation base on P. P. & E

The ratio of PP&E to sales = 145 / 246 = 0.59

and dep to PP $ E = 17.2 / 145 = 0.12

so the estimated PP&E = $ 295.2 * 0.59 =174 168

New Dep. Exp = 174.168 * 0.12 = 20.9

6. EBIT = EBITDA - Dep. exp. = 70.848 - 20.9 = $ 49.948

7. There is no change in interest so the interest is same as $ 12

8. EBT = EBIT - interest = 49.948 - 12 = $ 37.948

9. Tax pecentage = 10.4 / 29.8 = 35%

So the estimated tax = 37.948 * 35% = 13.28

10. Net income = EBT - Tax = 37.948 - 13.28 = $ 24.668

Income Statement in( million)

Particulars	2010	2011 (estimated)
Net sales	$ 246	$ 295.2
cost (246 - 59)	$ 187	$ 224.352
EBITDA	$ 59	$ 70.848
Depreciation	$ 17.2	$ 20.9
EBIT	$ 41.8	$ 49.948
Interest	$ 12	$ 12
EBT (Pretax Income)	$ 29.8	$ 37.948
Tax Exp.	$ 10.4	$ 13.28
Net Income	$ 19.4	$ 24.668

estimate​ Billy's Burgers' Net Income for 2011 = $ 24.668 million