Using the percent of sales method, determine whether the company had external fi
ID: 2653528 • Letter: U
Question
Using the percent of sales method, determine whether the company had external financing needs, or a surplus of needs. n next, which are rep. gion funds are needed to finance the growth The Manning Company has financial statements as shown next, w If salès resentative of the company's historical average. ment is concerned about the company's need for external funds. but rather through more efficient asset utilization in the existing stor ets The firm is expecting a 35 percent increase in sales next year, and l funds. The in in sales is expected to be carried out without any expansion of fixed n of fixed a sting store ear, and manage . The increase fixed assets 28. les liabilities, only current liabilities vary directly with sales. e whether the company has external financing needs, or a surplus of funds. (Hint: A profit margin a out ratio must be found from the income statement.) Using the percent-of-sales method, determine whether the compa Day Income Statement . $250,000 Sales Expenses Earnings before interest and taxes. Interest.... Earnings before taxes.. Taxes Earnings after ta Dividends . 192,000 58,000 7.500 .. 50,500 15,500 $ 35,000 $ 7,000 Balance Sheet Assets Liabilities and Stockholders' Equity Cash s 8,500 Accounts payable. 63,000 Accrued wages... 91,000 Accrued taxes 26,400 2,350 3,750 Accounts receivabl.. 63,000 Accrued wages Current asse $162,500 Current liabilities $ 32,500 es payable$32,500 Fixed assets ...85,000 Notes payable Long-term debt Common stock... Retained earnings Total liabilities and 7,500 17,500 125,000 65,000 , Total assets $247.500 stockholders' equity $247,500Explanation / Answer
Manning Company :
Profit Margin = Earning after Taxes / Sales
= $ 35,000 / $ 2,50,000 = 0.14 0r 14%
Payout Ratio = Dividends / Earnings
= $ 7,000 / $ 35,000 = 0.2 or 20%
Change in Sales = 35 % * $ 250,000
= $87,500
RNF = $ 162,500 / $250,000 * $87500 - $ 32,500 / $250,000 * $87,500 - .14($ 337,500) (1- .20)
= 0.65 * $ 87,500 - 0.13 * $87500 - $37,800
= $ 56875 - $ 11375 - $ 37,800
= $ 7700
The Firm need $ 7700 in external funds
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