Refine Assumptions for Dividend and Retained Earnings
Forecast
Provided below is FY2016 information for Medtronic PLC.
Medtronic plc | ||
---|---|---|
Consolidated Statement of Income | ||
($ millions) | Apr. 29, 2016 | |
Net sales | $28,833 | |
Costs and expenses | ||
Cost of products sold | 9,142 | |
Research and development expenses | 2,224 | |
Selling, general, and administrative expense | 9,469 | |
Special charges (gains), net | 70 | |
Restructuring charge, net | 290 | |
Certain litigation charges, net | 26 | |
Acquisition-related items | 283 | |
Amortization of intangiable assets | 1,931 | |
Other expense, net | 107 | |
Operating profit | 5,291 | |
Interest expense, net | 955 | |
Income from operations before income taxes | 4,336 | |
Provision for income taxes | 798 | |
Net income | $3,538 |
Medtronic plc | |||
---|---|---|---|
Consolidated Balance Sheet | |||
($ millions) | Apr. 29, 2016 | Apr. 24, 2015 | |
Current assets | |||
Cash and cash equivalents | $2,876 | $4,843 | |
Investments | 9,758 | 14,637 | |
Accounts receivable | 5,562 | 5,112 | |
Inventories | 3,473 | 3,463 | |
Tax assets | 697 | 1,335 | |
Prepaid expenses and other current assets | 1,234 | 1,454 | |
Total current assets | 23,600 | 30,844 | |
Property, plant, and equipment, net | 4,841 | 4,699 | |
Goodwill | 41,500 | 40,530 | |
Other intangiable assets, net | 26,899 | 28,101 | |
Long-term tax assets | 1,383 | 774 | |
Other assets | 1,559 | 1,737 | |
Total assets | $99,782 | $106,685 | |
Current liabilities | |||
Short-term borrowing | $993 | $2,434 | |
Accounts payable | 1,709 | 1,610 | |
Accrued compensation | 1,712 | 1,611 | |
Accrued income taxes | 566 | 935 | |
Deferred tax liabilities | - | 119 | |
Other accrued expenses | 2,185 | 2,464 | |
Total current liabilities | 7,165 | 9,173 | |
Long-term debt | 30,247 | 33,752 | |
Long-term accrued compensation | 1,759 | 1,535 | |
Long-term accrued income taxes | 2,903 | 2,476 | |
Long-term deferred tax liabilities | 3,729 | 4,700 | |
Other long-term liabilities | 1,916 | 1,819 | |
Total liabilities | 47,719 | 53,455 | |
Shareholders' equity | |||
Ordinary shares | - | - | |
Retained earnings | 53,931 | 54,414 | |
Accumulated other comprehensive (loss)/income | (1,868) | (1,184) | |
Total shareholders' equity | 52,063 | 53,230 | |
Total liabilities and shareholders' equity | $99,782 | $106,685 |
a. Use the financial statements along with the additional
information below to forecast retained earnings for
FY2017.
Forecasted net income | $4,972 million |
Dividends to shareholders' in FY2016 | 2,139 million |
Forecasted retained earnings $Answer
million
b. Suppose the MD&A section of the Form 10-K and additional
guidance from the company reveals the following additional
information.
2017 Est. | 2016 Actual | 2015 Actual | |
---|---|---|---|
Dividends per share | $1.72 | $1.52 | $1.22 |
At FY2016 year-end (April 29, 2016), the company had approximately
1,400 million shares issued and outstanding. Use this information
to refine your forecast of retained earnings for FY2017.
Forecasted retained earnings $Answer
million
ANSWER
(A):
Forecasted retained earnings for FY 2017 = $55,897 million
Workings:
For FY 2016:
Net income = $3,538 million
Dividends to shareholders' in FY2016 = $2,139 million
Dividend payout ratio = $2,139 /$3,538 = 60.46%
For FY 2017:
Forecasted net income = $4,972 million
Forecasted dividend payment = Forecasted net income * Dividend payout ratio
= $4,972 * 60.46% = $3,006 million
Forecasted Retained earnings for 2017 = Retained earnings in 2016 + Forecasted net income -Forecasted dividend payment
= $53,931 + $4,972 - $3,006
= $55,897 million
(B):
Forecasted retained earnings for FY 2017 = $56,495 million
Workings:
For 2017 Estimated Dividends per share = $1.72
Number of shares issued and outstanding =1,400 million
For 2017 Estimated Dividends = $1.72 * 1400 = $2,408 million
For 2017 Forecasted net income = $4,972 million
Hence:
Forecast of retained earnings for FY2017 = Retained earnings in 2016 + Forecasted net income - Estimated Dividends
= 53,931 + $4,972 - $2,408
= $56,495 million
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