Question

You have an appointment with a loan officer at Region’s bank to discuss your company’s financing needs. The banker asked that you prepare a proforma balance sheet and income statement. Below are the year end’s financial statements. Your sales department is projecting a 47% increase in sales. Days sales outstanding is expected to improve to 50. With respect to inventory and accounts payable, assume that purchases will be 10,200,000 and cash payments will be 10,500,000. You expect your company will invest 2,000,000, net of additional depreciation, to expand its storage capacity and achieve scale earnings. Accordingly, you expect gross profit margins to be 25% in the future. The retention ratio is 60%. Assume interest expense will remain the same. Prepare proforma financial statements and determine the borrowing needs, which will be reflected in the long-term debt. Upload an excel file. Don't forget to include your answer if you need external financing and how much.

	December 31, 2019
Cash	460,000.00
Accts receivable	1,610,000.00
Inventory	2,070,000.00
Total current assets	4,140,000.00
Fixed assets	1,610,000.00
Total assets	5,750,000.00
Accounts Payable	1,380,000.00
Long-term debt	1,150,000.00
Total debt	2,530,000.00
Common stock	1,495,000.00
Retained Earnings	1,725,000.00
Total debt & equity	5,750,000.00
	-
Sales	9,200,000.00
Cost of sales	7,475,000.00
Gross profit	1,725,000.00
Other expenses	920,000.00
EBIT	805,000.00
Interest	115,000.00
EBT	690,000.00
Taxes (40%)	276,000.00
Net income (60% retention)	414,000.00

Answer 1

		2019	CALCULATION	Projected 2020
	Sales	9,200,000	(9200000*1.47)	13,524,000
	Cost of Sales	7,475,000		10,143,000
	Gross Profit	1,725,000		3,381,000	(25%*13524000)
	Other expenses	920,000	(920000*1.47)	1,352,400
	(EBIT)Earning before interest and taxes	805,000		2,028,600
	Less:Interest	115,000		115,000
	(EBT)Taxable Income	690,000		1,913,600
	Taxes(40%)	276,000		765,440
	Net Income	414,000		1,148,160
	Less:Dividends(40%)	165,600		459,264
	Addition to retained Earnings	248,400		688,896
	Item	2019	CALCULATION		Projected Level 2020
	Cash	460,000	(460000*1.47)	Cash	676,200
	Accounts Receivables	1,610,000	(13524000/365)*50	Accounts Receivables	1,867,600
	Inventory	2,070,000	(2070000+10200000-10143000)	Inventory	2,127,000
	Total Current asset	4,140,000		Total Current asset	4,670,800
	Fixed Assets	1,610,000	1610000+2000000	Fixed assets	3,610,000
	Total Assets	5,750,000		Total Assets	8,280,800
	Accounts Payable	1,380,000	1380000+10200000-10500000	Accounts Payable	1,080,000
	Long Term Debt	1,150,000	(1150000+2141904)	Long Term Debt	3,291,904
	Total Debt	2,530,000		Total Debt	4,371,904
	Common Stock	1,495,000		Common Stock	1,495,000
	Retained earnings	1,725,000	(1725000+688896)	Retained earnings	2,413,896
	Total Liabilities and Equity	5,750,000		Total Liabilities and Equity	8,280,800
				External Fund Needed(EFN)
				Additional Fund Needed(AFN)	2141904
	External Finance Needed=Increase in total assets+(Decrease in Accounts payable)-(Increase in Retained Earning)
	External Finance Needed=	2,141,904	(8280800-5750000)+(1380000-1080000)-688896