The impact on the financial statements is shown below. Scenario: Improve 2013 Input Basis for 2014 Forecast 2014 Assets Cash $20 1% × 2014 Sales $22 Accts. rec. $280 14% × 2014 Sales $308 Inventories $400 16% × 2014 Sales $352 Total CA $700 $682 Net fixed assets $500 25% × 2014 Sales $550 Total assets $1,200 $1,232 Liabilities and equity Accts. pay. & accruals $80 4% × 2014 Sales $88 Line of credit $0 Add LOC if fin. deficit $0 Total CL $80 $88 Long-term debt $500 No Change $500 Total liabilities $580 $588 Common stock $420 No Change $420 Retained earnings $200 Old RE + Add. to RE $224 Total common equity $620 $644 Total liabs. & equity $1,200 $1,232 Check: TA TL & Equ. $0 − 2013 Input Basis for 2014 Forecast 2014 Improve $2,200 Sales $2,000 110% × 2013 Sales $1,969 Op. costs (excl. depr.) $1,800 89.5% × 2014 Sales $55 Depreciation $50 10% × 2014 Net PP&E $176 EBIT $150 $40 Less: Interest on LTD $40 8% × Avg bonds $0 Interest on LOC $0 8% × Beginning LOC $136 Pretax earnings $110 $54 Taxes (40%) $44 40% × Pretax earnings $82 Net income $66 $22 Regular common dividends $20 110% × 2013 Dividend $36 Special dividends $0 Pay if financing surplus $24 Addition to RE $46 Net income Dividends –
The impact on the financial statements is shown below. Scenario: Improve Assets 2013 Input Basis for 2014 Forecast 2014 Cash $20 1% × 2014 Sales $22 Accts. rec. $280 14% × 2014 Sales $308 Inventories $400 16% × 2014 Sales $352 Total CA $700 $682 Net fixed assets $500 25% × 2014 Sales $550 Total assets $1,200 $1,232 Liabilities and equity Accts. pay. & accruals $80 4% × 2014 Sales $88 Line of credit $0 Add LOC if fin. deficit $0 Total CL $80 $88 Long-term debt $500 No Change $500 Total liabilities $580 $588 Common stock $420 No Change $420 Retained earnings $200 Old RE + Add. to RE $224 Total common equity $620 $644 Total liabs. & equity $1,200 $1,232 Check: TA − TL & Equ. $0 Improve 2013 Input Basis for 2014 Forecast 2014 Sales $2,000 110% × 2013 Sales $2,200 Op. costs (excl. depr.) $1,800 89.5% × 2014 Sales $1,969 Depreciation $50 10% × 2014 Net PP&E $55 EBIT $150 $176 Less: Interest on LTD $40 8% × Avg bonds $40 Interest on LOC $0 8% × Beginning LOC $0 Pretax earnings $110 $136 Taxes (40%) $44 40% × Pretax earnings $54 Net income $66 $82 Regular common dividends $20 110% × 2013 Dividend $22 Special dividends $0 Pay if financing surplus $36 Addition to RE $46 Net income – Dividends $24
FM14e_SM_Ch12.docx