Toys-4-Kids manufactures plastic toys. Sales and production are highly seasonal. The following list of figures is a quarterly pro forma forecast indicating external financing needs for 2012. Assumptions are in parentheses.
Toys-4-Kids | ||||
2012 Quarterly Pro Forma Forecast | ||||
($ thousands) | ||||
| Qtr 1 | Qtr 2 | Qtr 3 | Qtr 4 |
Net sales | $ 300 | $ 375 | $3,200 | $ 5,000 |
Cost of sales (70% of sales) | 210 | 263 | 2,240 | 3,500 |
Gross profit | 90 | 113 | 960 | 1,500 |
Operating expenses | 560 | 560 | 560 | 560 |
Profit before tax | (470) | (448) | 400 | 940 |
Income taxes | (188) | (179) | 160 | 376 |
Profit after tax | ($ 282) | ($ 269) | $ 240 | $ 564 |
Cash (minimum balance $200,000) | $ 1,235 | $ 927 | $ 200 | $ 200 |
Accounts receivable (75% of quarterly sales) | 225 | 281 | 2,400 | 3,750 |
Inventory (12/31/11 balance $500,000) | 500 | 500 | 500 | 500 |
Current assets | 1,960 | 1,990 | 3,120 | 4,450 |
Net plant&equipment | 1,000 | 1,000 | 1,000 | 1,000 |
Total assets | $ 2,960 | $ 2,708 | $4,100 | $5,450 |
Accounts payable (10% of quarterly sales) | 30 | 38 | 320 | 500 |
Accrued taxes (payments quarterly in arrears) | (188) | (179) | 160 | 376 |
Current liabilities | (158) | (142) | 480 | 876 |
Long-term debt | 400 | 400 | 400 | 400 |
Equity (12/31/11 balance $3,000,000) | 2,718 | 2,450 | 2,690 | 3,254 |
Total liabilities and equity | $ 2,960 | $ 2,708 | $3,570 | $4,530 |
External financing required | $ 0 | $ 0 | $ 530 | $ 920 |
a. How do you interpret the negative numbers for income taxes in the first two quarters?
b. Why are cash balances in the first two quarters greater than the minimum required $200,000? How were these numbers determined?
c. How was “external financing required” appearing at the bottom of the forecast determined?
d. Do you think Toys-4-Kids will be able to borrow the external financing required as indicated by the forecast?
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