Table shows the December 31, 2012, pro forma balance sheet and income statements for R&E Supplies, Inc. The pro forma balance sheet shows that R&E Supplies will need external funding from the bank of $1.4 million. However, they show almost $1.3 million in cash and short-term securities. Why are they talking to the bank for such a large amount when they have most of this sum in their cash account?
TABLE Pro Forma Financial Statements for R&E Supplies, Inc., December 31, 2012 ($ thousands)
Income Statement | ||
| 2012 | Comments |
Net sales | $25,766 | 25% increase |
Cost of goods sold | 22,159 | 86% of sales |
Gross profit | 3,607 |
|
Expenses: |
|
|
General, selling, and administrative expenses | 3,092 | 12% sales |
Net interest expense | 90 | Initially constant |
Earnings before tax | 425 |
|
Tax | 191 | 45% tax rate |
Earnings after tax | $234 |
|
Balance Sheet |
| |
Assets |
|
|
Current assets: |
|
|
Cash and securities | $ 1,271 | 18 days sales |
Accounts receivable | 3,600 | 51-day collection period |
Inventories | 2,462 | 9 times turnover |
Prepaid expenses | 20 | Rough estimate |
Total current assets | 7,353 |
|
Net fixed assets | 280 | See text discussion |
Total assets | $7,633 |
|
Liabilities and Owners’ Equity |
|
|
Current liabilities: |
|
|
Bank loan | $ 0 |
|
Accounts payable | 3,582 | 59-day payables period |
Current portion of long-term debt | 100 | See text discussion |
Accrued wages | 22 | Rough estimate |
Total current liabilities | 3,704 |
|
Long-term debt | 660 |
|
Common stock | 150 |
|
Retained earnings | 1,697 | See text discussion |
Total liabilities and owners’ equity | $6,211 |
|
External funding required | $1,422 |
|
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