Question

The Manning Company has financial statements as shown next, which are representative of the company’s historical average. The firm is expecting a 40 percent increase in sales next year, and management is concerned about the company’s need for external funds. The increase in sales is expected to be carried out without any expansion of fixed assets, but rather through more efficient asset utilization in the existing store. Among liabilities, only current liabilities vary directly with sales.

Income Statement
Sales	$	210,000
Expenses		151,900
Earnings before interest and taxes	$	58,100
Interest		9,300
Earnings before taxes	$	48,800
Taxes		17,300
Earnings after taxes	$	31,500
Dividends	$	9,450

Balance Sheet
Assets			Liabilities and Stockholders' Equity
Cash	$	4,000	Accounts payable	$	22,200
Accounts receivable		56,000	Accrued wages		2,350
Inventory		66,000	Accrued taxes		4,850
Current assets	$	126,000	Current liabilities	$	29,400
Fixed assets		88,000	Notes payable		9,300
			Long-term debt		26,500
			Common stock		127,000
			Retained earnings		21,800
Total assets	$	214,000	Total liabilities and stockholders' equity	$	214,000

  

Using the percent-of-sales method, determine whether the company has external financing needs, or a surplus of funds. (Hint: A profit margin and payout ratio must be found from the income statement.) (Do not round intermediate calculations.)
  

Answer 1

Answer: profit mangin Ratio - pet profit Aher tax x sales --- XLOR = 31,500 -- X100 210,000 =1594 XIOO Dividend payout Ratio - Dividend paid west-profit often tax - 9,450 x 100 31,500 - 300/ Expected new soles = 210,000 X (1+0.640) = 310,000 x 1.40 = 294,000 change in sales = 294,000 --210,000 .: =84,000 Bateral financing waded Ceram): EFN=(cument assets xchangesin.cales) - (Turmeri birbibiles xakange in sales] Taew sales xprofiteorgia )« C1Dividend payout]] sales

$12,000 X 84,000 FENDE 210,000 29400 210,000 @ EFN = (* 12 6,000 X 841600)- no x84,000) : --(294,000 X 15.1)*(-304.) = 50,400 11460 -- 36610 = $7,770 . Ex-teemali financing needs (Ef ru] = $7,770