The Optimal Scam Company would like to see its sales grow at 20 percent for the foreseeable future. Its financial statements for the current year are presented below.
Income Statement ($ millions) Balance Sheet ($ millions)
Sales
32.00
Current assets
16
Costs
28.97
Fixed assets
16
Gross profit
3.03
Total assets
32
Taxes
1.03
Net income
2.00
Current debt
10
Long-term debt
4
Dividends
1.40
Total debt
14
Retained earnings
0.60
Common stock
14
Ret. earnings
4
Total liabilities and equity
32
The current financial policy of the Optimal Scam Company includes
Dividend-payout ratio (d) = 70%
Debt-to-equity ratio (L) = 77.78%
Net profit margin (P) = 6.25%
Assets-sales ratio (T) =1
Determine Optimal Scam's need for external funds next year.
Construct a pro forma balance sheet for Optimal Scam.
Calculate the sustainable growth rate for the Optimal Scam Company.
How can Optimal Scam change its financial policy to achieve its growth objective?