Question

Cheryl Colby, CFO of Charming Florist Ltd., has created the firm’s pro forma balance sheet for the next fiscal year. Sales are projected to grow by 11 percent to $396 million. Current assets, fixed assets, and short-term debt are 30 percent, 128 percent, and 13 percent of sales, respectively. Charming Florist pays out 19 percent of its net income in dividends. The company currently has $116 million of long-term debt, and $36 million in common stock par value. The profit margin is 5.5 percent. Assets Liabilities and equity   Current assets $107027027.03 Correct     Short-term debt $46378378.38 Correct     Long-term debt $116000000 Correct     Fixed assets 456648648.65456648648.65 Correct        Common stock $36000000 Correct     Accumulated retained earnings 365297297.3 Correct     Total equity $ 120637837 Incorrect     Total assets $ 563675675.68 Correct     Total liabilities and equity $ 563675675.68 Correct   Based on Ms. Colby’s sales growth forecast, how much does Charming Florist need in external funds for the upcoming fiscal year? _______________ Construct the firm’s pro forma balance sheet for the next fiscal year below and confirm the external funds needed that you calculated Assets Liabilities and equity   Current assets $ 118800000 Correct     Short-term debt $ 51480000 Correct     Long-term debt $ 116000000 Correct     Fixed assets $ 506880000 Correct            Common stock $ 36000000 Correct     Accumulated retained earnings $ Incorrect     Total equity $  Incorrect     Total assets $ 625680000 Correct     Total liabilities and equity $ Incorrect

Answer 1

1.

Assets		Liabilities and equity
Current assets	107027027.03	Short-term debt	46378378.38
Fixed assets	456648648.65	Long-term debt	116000000
		Total Liabilities	162378378.38
		Common stock	36000000
		Accumulated retained earnings	365297297.3
		Total equity	401297297.3
Total Assets	563675675.68	Total liabilities and equity	563675675.68

2.

Addition to retained earnings = Sales * Profit Margin - ( Sales * Profit margin * Net dividend)

= 396 * 5.5 % - ( 396 * 5.5 % *19%)

= 17641800

Projected retained earnings = 365297297.3 + 17641800 = 382939097.3

Original sales = 100 * 396 / 111 = 356.76

Change in sales = 396 - 356.76 = 39.2432432432433

EFN = ( Assets / Sales ) * Change in sales - Debt /Sales * Change in sales - ( Profit Margin * Projected sales * ( 1- Dividend payout ratio)

= 1.58 * 39.2432432432433 - 0.13 * 39.2432432432433 - ( 396 * 5.5 % *(1-19%))

= 39260902.7

3. Tied as below:

Assets		Liabilities and equity
Current assets	118800000	Short-term debt	51480000
Fixed assets	506880000	Long-term debt	116000000
		Total Liabilities	167480000
		Common stock	36000000
		Accumulated retained earnings	382939097.3
		EFN [bal. fig.]	39260902.7
		Total equity	458200000
Total Assets	625680000	Total liabilities and equity	625680000