2. Exhibit 9.14 presents the income statement and balance sheet for PartsCo, a $

Question

2. Exhibit 9.14 presents the income statement and balance sheet for PartsCo, a $900 million supplier of machinery parts. Next year, the company is expected to grow revenues by 15 percent to $1,035 million. Using the methodology outlined in Exhibit 9.3, forecast next year's income statement for PartsCo. Assume next year's forecast ratios are identical to this year's ratios. Forecast depreciation as a percentage of last year's property and equipment. Forecast interest as a percentage of last year's total debt.

3. Using the methodology outlined in Exhibit 9.10, forecast the operating items on next year's balance sheet for PartsCo. Forecast each balance sheet item as a function of revenue, except inventory and accounts payable, which should be forecast as a function of cost of sales. Your forecast should be consistent with the revenue and cost of sales forecast in Question 2.

EXHIBIT 9.14 PartsCo: Consolidated Financial Statements $ million Income statement Balance sheet Current year 12.3 Prior year 782.6 (508.7) (156.5) (27.0) 90.4 Current year Revenues Cost of sales Selling costs Depreciation Operating profit 900.0Working cash (612.0)Accounts receivable 171.0 Inventory (31.3)Current assets Prior year 15.0 85.8 69.7 170.5 75.5 198.8 720.0 918.8 Property and equipment 626.1 (5.0) 85.4 7.5) Total assets 78.2 Interest 796.6 Earnings before taxes 30.8 Liabilities and equity 47.4 Accounts payable Taxes 54.3 33.7 44.1 19.4 63.5 Net Income Short-term debt Current liabilities Long-term debt Shareholders' equity Liabilities and equity 170.0 592.9 796.6 215.0 640.3 918.8

Explanation / Answer

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2)

Income statement Current Forecast Year Year Next Year Forecast values Revenue 900.00 1035.01 (=900*(900/782.6)) Cost of Goods Sold -612.00 -703.81 (=-(612/900)*1035.01) Selling,General&Admin Expense -171.00 -196.65 (=-(171/900)*1035.01) Depreciation Expense -31.30 -35.99 (=-(31.3/626.1)*720) Operting Profit 85.70 98.56 Interest -7.5 -10.3412 (=(-7.5/170)*(215+19.4)) Earnings before taxes 78.20 88.22 Taxes -30.8 -34.7449 (=(-30.8/78.2)*88.22) Net Income 47.40 53.47

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