Question

Projected Operating Assets Formula Explanation Berman & Jaccor Corporation's current sales and partial balance sheet are shown below. This year Sales $ 1,000 Balance Sheet: Assets Cash $ 100 Short-term investments $ 70 Accounts receivable $ 200 Inventories $ 200     Total current assets $ 570 Net fixed assets $ 450     Total assets $ 1,020 Sales are expected to grow by 12% next year. Assuming no change in operations from this year to next year, what are the projected total operating assets? Do not round intermediate calculations. Round your answer to the nearest dollar. $

Answer 1

Operating Assets are the assets which are required to run the normal business activities of the organisation and to generate revenue. Assest that form part of operating assets are cash, accounts receivable, inventories, net fixed assets, etc.

These assets are important part of the business of an organisation. So the formalation of Operating Assets is as follows:

Operating Assets: Cash + Accounts receivables + Inventory + Net Fixed assets

It should be kept in mind that assets which are used for investment purpose are not included in operating assets, as short term investments in the above given data will not be considered to formulate projected operating assets.

Operating Assets are also connected with the level of sales in an organisation during any period of time. As if the sales of the company are high, high quantity of inventory will be required to ensure production. Also with the increasing sales, debtors who make credit purchases will be high, therefore accounts receivables will be more and so the operating assets are also impacted with increase in sales.

In the given example we can calculate the Operating Assets to be

= Cash + Accounts receivables + Inventory + Net Fixed assets

= 100 + 200 + 200 + 450 = $ 950

As it is expected in the next year that the sales will increase by 12%, the total sales come out to be

= current year sales + ( current year sales * growth rate in sales )

= 1000 + ( 1000 * 12% )

= $ 1,120

As the expected sales increase, it is assumed that the operating assets will also increase with the same growth rate that is 12% because we have already discussed that increased sales also impacts operating assets of the company

Therefore the Projected Operating Assets of the company are

= Current Operating Assets + ( Current Operating Assets * projected growth rate )

= 950 + ( 950 * 12% ) = $ 1,064

So with the given details Projected Operating Assets come out to be $ 1,064