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Refine Assumptions for Dividend and Retained Earnings Forecast Provided below is FY2016 information for Medtronic PLC....

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

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Answer #1

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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