Question

Using S&S Air financial statements for 2018 below, prepare proforma (forecast) for 2019 financial statements and calculate the External Financing Needed (EFN) for the company. S&S Air, Inc 2018 Income Statement Sales $46,298.115 Cost of goods sold 34,536,913 Other expenses 5,870.865 Depreciation 2074.853 $ 3.815.484 EBIT Interest 725.098 S 3,090.386 Taxable income 772 597 Taxes (21%) $ 2.317.799 Net income s 705,000 Dividends Add to retained earnings 1.612.789 S&S Air. Inc 2018 Balance Sheet Liabilities and Equity Assets Current assets Current liabilities S 524,963 S 1,068.356 Cash Accounts payable 2.439 553 Notes payable Accounts receivable S43,094 S3.507.909 Inventory 1235.161 Total current liabilities $ 2.603,21S Total current assets Long-term debt $ 6300.000 Fixed assets Shareholder equity Net plant and equipment $20.351.945 Common stock S 460,000 Retained earnings 12.717.254 Total equity S13.177.254 Total assets $22.985,163 Total liabilities and equity $22.985.163 Additional information: S&S Air is planning for a growth rate of 12 percent next year. Tax rate is 25%. The company is operating at full capacity Income Statement: Costs vary directly with sales Depreciation and interest expense do not vary directly with sales. Dividends do not vary directly with sales Balance Sheet: Assume all assets vary directly with sales. Accounts paya ble will also normally vary directly with sales. Notes paya ble, long-term debt and equity do not vary directly with sales because they depend on management decisions about capital structure. The change in the retained earnings portion of equity will come from the dividend decision.

Answer 1

The proforma income statement is prepared by increasing sales, COGS and other expenses by 12%.

Interest, depreciation, and dividends are unchanged

Tax rate is 25% (tax expense / taxable income)

All assets and accounts payable are increased by 12% as they vary directly with sales

Retained earnings in 2019 is the balancing figure, after making "total liabilities and equity " equal to total assets of $23,149,330

S&S Air Inc. proforma income statement
			2018	2019
Sales			$ 46,298,115	$ 51,853,889
COGS			$ 34,536,913	$ 38,681,343
Other Expenses			$    5,870,865	$    6,575,369
Depreciation			$    2,074,853	$    2,074,853
EBIT			$    3,815,484	$    4,522,324
Interest			$        725,098	$        725,098
Taxable Income			$    3,090,386	$    3,797,226
Taxes (25%)			$        772,597	$        949,307
Net Income			$    2,317,789	$    2,847,920
	Dividends		$        705,000	$        705,000
	Add to RE		$    1,612,789	$    2,142,920

S&S Air Inc. proforma balance sheet
Assets					Liabilities & Equity
		2018	2019				2018	2019
Cash		$        524,963	$        587,959		Accounts payable		$    1,068,356	$    1,068,356
Accounts Receivable		$        843,094	$        944,265		notes payable		$    2,439,553	$    2,439,553
Inventory		$    1,235,161	$    1,235,161		Total current liabilites		$    3,507,909	$    3,507,909
Total current assets		$    2,603,218	$    2,767,385
					long term debt		$    6,300,000	$    6,300,000
Net plant and equipment		$ 20,381,945	$ 20,381,945
					common stock		$        460,000	$        460,000
					retained earnigns		$ 12,717,254	$ 12,881,421
					total equity		$ 13,177,254	$ 13,341,421
Total Assets		$ 22,985,163	$ 23,149,330		total liabilities and equity		$ 22,985,163	$ 23,149,330