Part 2 TKM0844 11E IM Ch17
Chapter 17
Financial Forecasting and Planning
17-1.
We are to estimate the total financing needed (total assets) and net funding requirements (discretionary financing needed) for the next year (2011) for Zapatera Enterprises. We’ll start with total assets.
We’re told that the firm’s 2011 sales will be $15M, and that the proportion of sales represented by operating expenses, current assets, net fixed assets, and current liabilities will be the same as for
2010. Thus, we can create Zapatera’s pro forma balance sheet for 2011 by using its 2010 values as references. When finding the 2011 values, we calculate ($15M) ∗ (appropriate %) for current assets, net fixed assets, and current liabilities (where the “appropriate %” values are 25%, 50%, and 25%, respectively).
The percentages we use are the same proportions of sales that Zapatera had for 2010; for example, the current asset proportion was found as ($3M/$12M) = 25%. Long-term debt, common stock, and paid-in capital keep the same values that they had in 2010, since these amounts are assumed not to vary with sales. Finally, 2011 retained earnings is found as:
2011 retained earnings = 2010 retained earnings + 2011 net income − 2011 dividends
= $1,200,000 + $2,000,000 − $0
= $3,200,000.
(See footnote b to Table 17.1 for another example of the retained earnings calculation.)
Substituting our estimates into the balance sheet form, we find the following for 2011:
2010
sales $12,000,000 net income $1,200,000
% of sales 2011
$15,000,000
10.00% $2,000,000
% of sales 13.33%
BALANCE SHEET
2010
current assets $3,000,000 net fixed assets $6,000,000
TOTAL ASSETS $9,000,000 accounts payable long-term debt
TOTAL LIABILITIES common stock paid-in capital retained earnings
COMMON EQUITY
TOTAL LIABILITIES & OWNERS' EQUITY
$3,000,000
$2,000,000
$5,000,000
$1,000,000
$1,800,000
$1,200,000
$4,000,000
$9,000,000
% of sales 25%
50%
25%
2011
$3,750,000
$7,500,000
$11,250,000
$3,750,000
$2,000,000
$5,750,000
$1,000,000
$1,800,000
Financial Forecasting and Planning
17-1.
We are to estimate the total financing needed (total assets) and net funding requirements (discretionary financing needed) for the next year (2011) for Zapatera Enterprises. We’ll start with total assets.
We’re told that the firm’s 2011 sales will be $15M, and that the proportion of sales represented by operating expenses, current assets, net fixed assets, and current liabilities will be the same as for
2010. Thus, we can create Zapatera’s pro forma balance sheet for 2011 by using its 2010 values as references. When finding the 2011 values, we calculate ($15M) ∗ (appropriate %) for current assets, net fixed assets, and current liabilities (where the “appropriate %” values are 25%, 50%, and 25%, respectively).
The percentages we use are the same proportions of sales that Zapatera had for 2010; for example, the current asset proportion was found as ($3M/$12M) = 25%. Long-term debt, common stock, and paid-in capital keep the same values that they had in 2010, since these amounts are assumed not to vary with sales. Finally, 2011 retained earnings is found as:
2011 retained earnings = 2010 retained earnings + 2011 net income − 2011 dividends
= $1,200,000 + $2,000,000 − $0
= $3,200,000.
(See footnote b to Table 17.1 for another example of the retained earnings calculation.)
Substituting our estimates into the balance sheet form, we find the following for 2011:
2010
sales $12,000,000 net income $1,200,000
% of sales 2011
$15,000,000
10.00% $2,000,000
% of sales 13.33%
BALANCE SHEET
2010
current assets $3,000,000 net fixed assets $6,000,000
TOTAL ASSETS $9,000,000 accounts payable long-term debt
TOTAL LIABILITIES common stock paid-in capital retained earnings
COMMON EQUITY
TOTAL LIABILITIES & OWNERS' EQUITY
$3,000,000
$2,000,000
$5,000,000
$1,000,000
$1,800,000
$1,200,000
$4,000,000
$9,000,000
% of sales 25%
50%
25%
2011
$3,750,000
$7,500,000
$11,250,000
$3,750,000
$2,000,000
$5,750,000
$1,000,000
$1,800,000