FIN 302 Lecture Notes - Lecture 17: Cash Flow, Financial Statement, Income Statement
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The following tables are the income statement and balance sheet for Company X for year 2016.
Income Statement: | |||
2016 | |||
Sales | 3,045,600 | ||
Costs except Depr. | (1,756,300) | ||
EBITDA | 1,289,300 | ||
Depreciation | (99,000) | ||
EBIT | 1,190,300 | ||
Interest Expense (net) | (58,000) | ||
Pretax Income | 1,132,300 | ||
Income Tax | (396,305) | ||
Net Income | 735,995 |
Balance Sheet | |||
2016 | |||
Assets | |||
Cash and Equivalents | 500,000 | ||
Accounts Receivable | 780,000 | ||
Inventories | 100,000 | ||
Total Current Assets | 1,380,000 | ||
Property Plant and Equipment | 1,700,000 | ||
Total Assets | 3,080,000 | ||
Liabilities and Equity | |||
Accounts Payable | 667,000 | ||
Debt | 200,000 | ||
Total Liabilities | 867,000 | ||
Stockholders' Equity | 2,213,000 | ||
Total Liabilities and Equity | 3,080,000 |
The executives at Company X believe the sales for the company will grow during 2017 in 8%, compared to 2016. Calculate the pro-forma financial statements for Company X for 2017 using the percent sales method. To do this assume that the percentage values with respect to sales of the (i) costs except depreciation, (ii) depreciation, (iii) cash and equivalents, (iv) accounts receivable, (v) inventories, (vi) property, plant and equipment, and (vi) accounts payable will stay fixed at the values corresponding for 2016. Assume also that the interest expense and debt will not change in 2017 from its 2016 values, income tax will remain at 35% of the Pretax Income and that in 2017 Company X initially plans to payout 24% of its net income to its shareholders.
a. What is the forecasted value of sales for 2017?
b. What is the forecasted value of net income for 2017?
c.What is the forecasted value of total assets for 2017?
d. What is the forecasted value of total liabilities for 2017?
e. What is the forecasted value of net new financing 2017?
f. What option can the financial manager of Corporation X implement in order to balance total assets and total liabilities and equity for 2017? CHOOSE ONE OPTION ONLY
> Increase the debt by the amount indicated in your calculations of net new financing;
or
> Increase the dividends by the amount indicated in your calculations of net new financing;
The following is the financial statement of Executive Fruit Company for the year ended December 2014. |
INCOME STATEMENT, 2014 | |||
(Figures in $ Thousands) | |||
Revenue | $ | 5,500 | |
Cost of goods sold | 4,950 | ||
EBIT | $ | 550 | |
Interest | 110 | ||
Earnings before taxes | $ | 440 | |
State and federal tax | 176 | ||
Net income | $ | 264 | |
Dividends | 176 | ||
Additions to retained earnings | $ | 88 | |
BALANCE SHEET (Year-End, 2014) | |||
(Figures in $ Thousands) | |||
Assets | |||
Net working capital | $ | 550 | |
Fixed assets | 2,200 | ||
Total assets | $ | 2,750 | |
Liabilities and shareholders' equity | |||
Long-term debt | $ | 1,100 | |
Shareholders' equity | 1,650 | ||
Total liabilities and shareholders' equity | $ | 2,750 | |
The following are the first stage and second stage pro forma financial statements of Executive Fruit Company for the year ended December 2015. |
First stage pro forma statements: |
PRO FORMA INCOME STATEMENT, 2015 | |||
(Figures in $ Thousands) | |||
Revenue | $ | 6,050 | |
Cost of goods sold | 5,445 | ||
EBIT | $ | 605 | |
Interest | 110 | ||
Earnings before taxes | $ | 495 | |
State and federal tax | 198 | ||
Net income | $ | 297 | |
Dividends | 198 | ||
Additions to retained earnings | $ | 99 | |
PRO FORMA BALANCE SHEET (Year-End, 2015) | |||
(Figures in $ Thousands) | |||
Assets | |||
Net working capital | $ | 605 | |
Fixed assets | 2,420 | ||
Total assets | $ | 3,025 | |
Liabilities and shareholders' equity | |||
Long-term debt | $ | 1,100 | |
Shareholders' equity | 1,749 | ||
Total liabilities and shareholders' equity | $ | 2,849 | |
Required external financing | $ | 176 | |
Second stage pro forma balance sheet: |
PRO FORMA BALANCE SHEET (Year-End, 2015) | |||
(Figures in $ Thousands) | |||
Assets | |||
Net working capital | $ | 605 | |
Fixed assets | 2,420 | ||
Total assets | $ | 3,025 | |
Liabilities and shareholders' equity | |||
Long-term debt | $ | 1,276 | |
Shareholders' equity | 1,749 | ||
Total liabilities and shareholders' equity | $ | 3,025 | |
How would Executive Fruitâs financial model change if the dividend payout ratio were cut to 1/3? Use the revised model to generate a new financial plan for 2015 assuming that debt is the balancing item. What would be the required external financing? (Do not round intermediate calculations.) |
Dividends fall by $ . Therefore, the requirement for external financing falls from $ to $ . On the other hand, shareholders' equity will be increased by $ . |
The right-hand side of the balance sheet becomes (Do not round intermediate calculations. Enter your answers in thousands.): |
Long-term debt | $ |
Shareholders' equity | |
Total | $ |
The following is the financial statement of Executive Fruit Company for the year ended December 2014. |
INCOME STATEMENT, 2014 | |||
(Figures in $ Thousands) | |||
Revenue | $ | 4,000 | |
Cost of goods sold | 3,600 | ||
EBIT | $ | 400 | |
Interest | 80 | ||
Earnings before taxes | $ | 320 | |
State and federal tax | 128 | ||
Net income | $ | 192 | |
Dividends | 128 | ||
Additions to retained earnings | $ | 64 | |
BALANCE SHEET (Year-End, 2014) | |||
(Figures in $ Thousands) | |||
Assets | |||
Net working capital | $ | 400 | |
Fixed assets | 1,600 | ||
Total assets | $ | 2,000 | |
Liabilities and shareholders' equity | |||
Long-term debt | $ | 800 | |
Shareholders' equity | 1,200 | ||
Total liabilities and shareholders' equity | $ | 2,000 | |
The following are the first stage and second stage pro forma financial statements of Executive Fruit Company for the year ended December 2015. |
First stage pro forma statements: |
PRO FORMA INCOME STATEMENT, 2015 | |||
(Figures in $ Thousands) | |||
Revenue | $ | 4,400 | |
Cost of goods sold | 3,960 | ||
EBIT | $ | 440 | |
Interest | 80 | ||
Earnings before taxes | $ | 360 | |
State and federal tax | 144 | ||
Net income | $ | 216 | |
Dividends | 144 | ||
Additions to retained earnings | $ | 72 | |
PRO FORMA BALANCE SHEET (Year-End, 2015) | |||
(Figures in $ Thousands) | |||
Assets | |||
Net working capital | $ | 440 | |
Fixed assets | 1,760 | ||
Total assets | $ | 2,200 | |
Liabilities and shareholders' equity | |||
Long-term debt | $ | 800 | |
Shareholders' equity | 1,272 | ||
Total liabilities and shareholders' equity | $ | 2,072 | |
Required external financing | $ | 128 | |
Second stage pro forma balance sheet: |
PRO FORMA BALANCE SHEET (Year-End, 2015) | |||
(Figures in $ Thousands) | |||
Assets | |||
Net working capital | $ | 440 | |
Fixed assets | 1,760 | ||
Total assets | $ | 2,200 | |
Liabilities and shareholders' equity | |||
Long-term debt | $ | 928 | |
Shareholders' equity | 1,272 | ||
Total liabilities and shareholders' equity | $ | 2,200 | |
How would Executive Fruitâs financial model change if the dividend payout ratio were cut to 1/3? Use the revised model to generate a new financial plan for 2015 assuming that debt is the balancing item. What would be the required external financing? (Do not round intermediate calculations.) |
Dividends fall by $ . Therefore, the requirement for external financing falls from $ to $ . On the other hand, shareholders' equity will be increased by $ . |
The right-hand side of the balance sheet becomes (Do not round intermediate calculations. Enter your answers in thousands.): |
Long-term debt | $ |
Shareholders' equity | |
Total | $ |