Projected income statement, Balance sheet and cash flow statement.
The Haverly Company expects to finish the current year with the following financial results, and is developing its annual plan for next year.
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Haverly Company Income Statement 200X
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$
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%
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Net Sales
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73,280
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100
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COGS
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31,743
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43
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Gross Margin
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42,077
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57
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Expenses
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Marketing
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17,422
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23.6
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Engineering
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7,087
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9.6
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Finance and Administration
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7,603
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10.3
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Total Expenses
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32,112
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43.5
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EBIT
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9,965
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13.5
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Interest
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2,805
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3.8
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EBT
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7,160
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9.7
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Income Tax
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3,007
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4.1
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NI
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4,153
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5.6
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Haverly Company Balance Sheet 200X
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Assets
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Liabilities and Equity
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Cash
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8,940
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Accounts Payable
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1,984
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Accounts Receivable
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12,303
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Accruals
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860
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Inventory
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7,054
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Current Liabilities
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2,844
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Current Assets
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28,297
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Long-Term Debt
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22,630
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Capital Assets
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Equity
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Gross
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65,233
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Common Shares
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18,500
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Less Accumulated Amortization
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(23987)
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Retained Earnings
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25,559
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Net
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41,236
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Total Equity
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44,059
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Total Assets
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69,533
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Total Liabilities and Equity
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69,533
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The following facts are available:
- Payables are almost entirely due to inventory purchases and can be estimated by using COGS, which is 43% of revenues.
- Currently owned assets will amortize an additional $1,840,000 next year
- There are two balance sheet accruals
- The first is for unpaid wages. The current payroll of $32 million is expected to grow by 12% next year. The closing date of the year will be six working days after a payday.
- The second accrual is an estimate of the cost of purchased items that have arrived in inventory, but for which vendor invoices have not yet been received. This materials accrual is generally about 10% of the payables balance at year-end.
- The combined federal and provincial tax rate is 42%
- Interest on current and future borrowings will be at a rate of 7%
Planning Assumptions:
Income Statement Items
1. Revenue will grow by 13% with no change in the product mix. Competitive pressure, however, is expected to force some reductions in pricing.
2. The pressure on prices will result in a 1.5% increase in next year's cost ratio.
3. Spending in the marketing department is considered excessive and will be held to 21% of revenue next year.
4. Because of a major development project, expenses in the engineering department will increase by 20%.
5. Finance and administration expenses will increase by 6%.
Assets and Liabilities:
1. An enhanced cash management system will reduce cash balances 10%.
2. The Average Accounts Receivable Collection Days will be reduced by 15 days. (Calculate the current value to arrive at the target.)
3. The inventory turnover ratio (COGS/Inventory) will decrease by 0.5 times.
4. Capital spending is expected to be $7 million. The average life of the assets acquired is 10 years. The firm uses straight line amortization.
5. Bills are currently paid in 50 days. Plans are to shorten that to 40 days.
6. A dividend totaling $1.5 million will be paid next year. No new shares will be sold.
Develop next year's financial plan for Haverly on the basis of these assumptions and last year's financial statements. Include a projected income statement, balance sheet, and statement of cash flows.