Glenturn expects the following year-end results: Income Statement Balance Sheet

Question

Glenturn expects the following year-end results: Income Statement Balance Sheet Sales 323,099 $ Assets 613,500 $ Debt 204,440 $ Costs 239,543 Equity 409,060 Taxable income 83,556 $ Total 613,500 $ Total 613,500 $ Taxes (34%) 28,409 Net income 55,147 $ Tax rate 34% Dividend paid 23,700 $ Glenturn, Inc. 2016 Expected Sales 169,410,000 $ COGS 123,669,300 Other expenses 28,994,000 Depreciation 5,060,000 EBIT 11,686,700 $ Interest expense 3,509,000 Taxable income 8,177,700 $ Taxes (35%) 2,862,195 Tax rate 35% Net income 5,315,505 $ Dividends 3,720,854 $ Payout 70% Add to RE 1,594,652 $ Current Assets Current liabilities Cash 3,142,000 $ Accounts payable 8,572,000 $ Accounts rec. 15,502,000 Short-term Debt 12,579,000 Inventory 10,196,000 Total CL 21,151,000 $ Total CA 28,840,000 $ Long-term debt 44,135,000 $ Fixed assets Net PP&E 95,944,000 $ Shareholder equity Paid-In Capital 5,350,000 $ Retained earnings 54,148,000 Total equity 59,498,000 $ Total assets 124,784,000 $ Total L&E 124,784,000 $ Liabilities & EquityAssets Financial Management 1 BFIN 2409 Summer-1 2016 (Tues) Page 4 C.J. Ramsey, CEO, isn’t fully satisfied, and is seeking some operational improvements. But first, Ramsey wants to analyze current performance.

(A) Ramsey wants to know the following 11 financial analysis items. Please calculate them for the actual results above. (Ignore averaging the Balance Sheet items.) Current ratio Total asset turnover Gross Margin Receivables turnover Inventory turnover Payables turnover Effective Interest Rate (actual interest divided by sum of S-T and L-T debt) Interest coverage Return on Sales (Net Profit Margin) Return on Assets Return on Equity

(B) Ramsey next decides to create a 2017 forecast with the following targets: a. Sales growth of 6.5% b. Gross margin improvement to 29% c. Receivables turnover improvement (increase) to 12 d. Inventory turnover improvement (increase) to 13 e. Payables turnover improvement (decrease) to 10 f. Cash and “Other” expenses will increase proportional to sales g. Net Fixed Assets will grow by $7.0 million, leading to a Depreciation increase of $1.3 million h. Change Dividend policy to pay out 80% of Net Income i. Long-Term Debt reduced by $1.5 million j. No change in Paid-In Capital k. Interest expense at the same effective rate as in prior year1 l. As before, use Short-Term Debt as the balancing item Please create the forecasted 2017 Income Statement and Balance Sheet.

(C) Ramsey wants to see the results of the forecast and so adds a column to her 11-item ratio analysis in Part (A) above and adds the results for the forecast. Please calculate these same 11 items for the forecasted year. (Continue to ignore averaging the balance sheet items.)

Explanation / Answer

A). 11 FINANCIAL RATIOS FO R 2016

__________________________________________________________________________________________

S.NO.       NEME OF RATIO                 FORMULA                      COMPUTATION                   RATIO            

1.        CURRENT RATIO                        CA/CL                            288,840,000/21151000       =     1.36

2.        TOTAL ASSETS TURNOVER      SALES/ASSETS         169,410,000/124784000      =     1.36

3.        GROSS MARGIN                 GROSS MARGIN/SALES      45740700/169410000          =     27%

4.        RECEIVABLE TURNOVER     SALES/RECEIVABLES      169,410,000/15,502,000       =   10.93

5.        INVENTORY TURNOVER        COGS/INVENTORY          123,669,300/10,196,000       =   12.13

6.        PAYABLE TURNOVER             COFS/ACCOUNTS PAYBLE 123,669,300/8,572,000    = 14.43   

7.        EFFECTIVE INTEREST             INTEREST/ST & LT DEBT    3,509,000/56714000        =     6.19%

8.        INTEREST COVERAGE            EBIT/INTEREST                    11686700/3509000         =     3.33

9.        RETURN ON SALES                 NET PROFIT/SALES             5315505/169,410,000     = 3.14%

10.      RETURN ON ASSETS              NET PROFIT/ASSETS          5,315,505/124,784,000    = 4.26%

11.     RETURN ON EQUITY                NET INCOME/EQUITY         5,315,505/59,498,000      =    8.93%

B)     PROJECTED INCOME STATEMENT FOR THE YEAR 2017

         __________________________________________________________________________________

                                                                                                                    $

         SALES        (169410000 + 6.5%)                                                180,421,650

         COGS      (BALANCING FIGURE)                                              133,766,136  

         GROSS MARGIN (45740700 + 2%)                                             46,655,514

         OTHER EXPENSES (28,994,000+6.5%)                                      (30,878,610)

         DEPRECIATION ( 5,060,000 + 1,300,000)                                    ( 6,360,000)

         EBIT                                                                                                 9,416,904

         LESS: INTEREST                                                                            3,509,000

         EBT                                                                                                  5,907,904

         LESS: TAX                                                                                      2,067,766

         NET INCOME                                                                                  3,840,138

PROJECTED BALANCE SHEET FOR THE YEAR 2017

_____________________________________________________________________________________

CURRENT LIABILITIES                                                                                                  $

CASH (3,142,000 + 6.5%)                                                                                         3,346,230

ACCOUNTS RECEIVABLES= (180,421,650/RECEIVABLES = 12)                         15035138

INVENTORY (133766136/INVENTORY = 13)                                                           10289703

CURRENT LIABILITIES                                                                                           2,867,1071

FIXED ASSETS ( 95,944,000+7,000,000-1,300,000)                                              101,644,000

TOTAL ASSETS                                                                                                       130,315,071

CURRENT LIABILITIES

ACCOUNTS PAYABLE (133,766,136/A/C PAYABLE = 10)                                      13,376,614

SHORT TERM DEBT                                                                                                 14,037,429

CURRENT LIABILITIES                                                                                             27,414,043

LONG TERM DEBT (44,135,000 - 1,500,000)                                                           42,635,000

STOCKHOLDERS EQUITY                                             

PAID UP CAPITAL                                                                                                       5,350,000

RETAINED EARNINGS (54,148,000+3,840,138 - 3,072,110)                                   54,916,028                                                                                                                                 

LIABILITIES & STOCKHOLDERS EQUITY                                                             130,315,071                           

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