Chapter 17 - Financial planning and forecasting. This chapter presents the following content: Forecasting sales, projecting the assets and internally generated funds, projecting outside funds needed, deciding how to raise funds. | CHAPTER 17 Financial Planning and Forecasting Forecasting sales Projecting the assets and internally generated funds Projecting outside funds needed Deciding how to raise funds Balance sheet (2002), in millions of dollars Cash & sec. $ 20 Accts. pay. & accruals $ 100 Accounts rec. 240 Notes payable 100 Inventories 240 Total CL $ 200 Total CA $ 500 L-T debt 100 Common stock 500 Net fixed Retained assets 500 earnings 200 Total assets $1,000 Total claims $1,000 Income statement (2002), in millions of dollars Sales $2, Less: Var. costs (60%) 1, Fixed costs EBIT $ Interest EBT $ Taxes (40%) Net income $ Dividends (30%) $ Add’n to RE $ Key ratios NWC Industry Condition BEP Poor Profit margin ” ROE ” DSO days days ” Inv. turnover ” F. A. turnover ” T. A. turnover ” Debt/assets Good TIE Poor Current ratio ” Payout ratio O. K. Key assumptions Operating at full capacity in 2002. Each type of asset grows proportionally with sales. Payables and accruals grow proportionally with sales. 2002 profit margin () and payout (30%) will be maintained. Sales are expected to increase by $500 million. (%DS = 25%) Determining additional funds needed, using the AFN equation AFN = (A*/S0)ΔS – (L*/S0) ΔS – M(S1)(RR) = ($1,000/$2,000)($500) – ($100/$2,000)($500) – ($2,500)() = $ million. How shall AFN be raised? The payout ratio will remain at 30 percent (d = 30%; RR = 70%). No new common stock will be issued. Any external funds needed will be raised as debt, 50% notes payable and 50% L-T debt. Forecasted Income Statement (2003) Sales $2,000 $2,500 Less: VC 1,200 1,500 FC 700 875 EBIT $ 100 $ 125 Interest 16 16 EBT $ 84 $ 109 Taxes (40%) 34 44 Net income $ 50 $ 65 Div. (30%) $15 $19 Add’n to RE $35 $46 Forecast Basis 2003 Forecast 2002 2003 1st Pass Forecasted . | CHAPTER 17 Financial Planning and Forecasting Forecasting sales Projecting the assets and internally generated funds Projecting outside funds needed Deciding how to raise funds Balance sheet (2002), in millions of dollars Cash & sec. $ 20 Accts. pay. & accruals $ 100 Accounts rec. 240 Notes payable 100 Inventories 240 Total CL $ 200 Total CA $ 500 L-T debt 100 Common stock 500 Net fixed Retained assets 500 earnings 200 Total assets $1,000 Total claims $1,000 Income statement (2002), in millions of dollars Sales $2, Less: Var. costs (60%) 1, Fixed costs EBIT $ Interest EBT $ Taxes (40%) Net income $ Dividends (30%) $ Add’n to RE $ Key ratios NWC Industry Condition BEP Poor Profit margin ” ROE ” DSO days days ” Inv. turnover ” F. A. turnover ” T. A. turnover ” Debt/assets Good TIE Poor Current ratio ” .
