The Conn Man's Shops, Inc., a national clothing chain, has sales of $300 million last year. The business has a steady net profit margin of 8 percent and the dividend payout ratio of 25 percent. Balance sheet for the end of last year is shown below.
Firm's marketing staffs have told president that in coming year there will be the large increase in the demand for overcoats and wool slacks. Sales increase of 15 percent is forecast for the company.
Every balance sheet items are expected to maintain the similar percent-of-sales relationships as last year except for common stock and retained earnings. No change is scheduled in number of common stock shares outstanding, and retained earnings will change as dictated by the profits and dividend policy of the firm. (Remember the net profit margin is 8 percent.)
a) Will external financing be required for the company during the coming year?
b) What would be the need for external financing if the net profit margin went up to 9.5 percent and the dividend payout ratio was increased to 50 percent? describe briefly.