Question - Prepare the following:
2016 Financial Forecasting: Additional Funds Needed
The firm is planning on a 15% increase in sales for 2017, with the Profit Margin remaining the same percentage as 2016 and the Dividend Payout Rate the same at 21.70% for 2016, the firm is forecasting an AFN of $188,233 for 2017.
How can the firm reduce this need for external capital for 2017?
What strategies can be used to reduce the need for external funds and the firm to be entirely internally financed for 2017?
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2015
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2016
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Year-end common stock price
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$22.50
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$7.45
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Year-end shares outstanding
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100,000
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250,000
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Tax rate
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40%
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40%
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|
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Balance Sheets
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Assets
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2015
|
2016
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Cash and equivalents
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$7,282
|
$14,000
|
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Short-term investments
|
$20,000
|
$71,632
|
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Accounts receivable
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$632,160
|
$878,000
|
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Inventories
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$1,287,360
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$1,716,480
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Total current assets
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$1,946,802
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$2,680,112
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Gross Fixed Assets
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$1,202,950
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$1,220,000
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Less Accumulated Dep.
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$263,160
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$383,160
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Net Fixed Assets
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$939,790
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$836,840
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Total Assets
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$2,886,592
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$3,516,952
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Liabilities and equity
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|
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Accounts payable
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$324,000
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$359,800
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Notes payable
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$720,000
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$300,000
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Accruals
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$284,960
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$380,000
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Total current liabilities
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$1,328,960
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$1,039,800
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Long-term bonds
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$1,000,000
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$500,000
|
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Total liabilities
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$2,328,960
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$1,539,800
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Common stock
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$460,000
|
$1,680,936
|
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Retained earnings
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$97,632
|
$296,216
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Total common equity
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$557,632
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$1,977,152
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Total liabilities and equity
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$2,886,592
|
$3,516,952
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Income Statements
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2015
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2016
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Net sales
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$5,834,400
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$7,035,600
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Costs of Goods Sold
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$4,980,000
|
$5,800,000
|
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Other Expenses
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$720,000
|
$612,960
|
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Depreciation
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$116,960
|
$120,000
|
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Total Operating Cost
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$5,816,960
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$6,532,960
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Earnings before interest and taxes (EBIT)
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$17,440
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$502,640
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Less interest
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$176,000
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$80,000
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Earnings before taxes (EBT)
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($158,560)
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$422,640
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Taxes (40%)
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($63,424)
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$169,056
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Net Income
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($95,136)
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$253,584
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Dividends Per Share
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$0.110
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$0.220
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