APX Co achieved $16 million revenue in the year that has just ended and expects revenue growth of 8.4% in the next year. Cost of sales in the year that has just ended was $10.88 million and other expenses were $1.44 million. The financial statements of APX for the year that has just ended contain the following statement of financial position: $m $m Non-current assets 22.0 Current assets 2.4 Inventory 2.2 Trade Receivables 4.6 Total Assets 26.6 $m $m Equity Finance 5.0 Ordinary Shares 7.5 Reserves 12.5 Long-term bank loan 10.0 22.5 Current Liabilities 1.9 Trade Payables 2.2 Overdraft 4.1 Total equity and liabilities 26.6 The long-term bank loan has a fixed annual interest rate of 8% per year. APX pays taxation at an annual rate of 30% per year. The following accounting ratios have been forecast for the next year: Gross profit margin:30% Operating profit margin:20% Dividend payout ratio:50% Inventory turnover period:110 days Trade receivables period: 65 days Trade payables period: 75 days Overdraft interest in the next year is forecast to be $140,000. No change is expected in the level of non-current assets and depreciation should be ignored. Required: Prepare the following forecast financial statements for APX Co using the information provided: (i) An income statement for the next year; and (ii) A statement of financial position at the end of the next year. Analyze and discuss the working capital financing policy of APX Co. Analyze and discuss the forecast financial performance of APX Co in terms of working capital management.
APX Co achieved $16 million revenue in the year that has just ended and expects revenue growth of 8.4% in the next year. Cost of sales in the year that has just ended was $10.88 million and other expenses were $1.44 million.
The financial statements of APX for the year that has just ended contain the following
|
|
$m |
$m |
|
Non-current assets |
|
22.0 |
|
Current assets |
2.4 |
|
|
Inventory |
2.2 |
|
|
Trade Receivables |
4.6 |
|
|
Total Assets |
|
26.6 |
|
|
|
|
|
|
$m |
$m |
|
Equity Finance |
5.0 |
|
|
Ordinary Shares |
7.5 |
|
|
Reserves |
|
12.5 |
|
Long-term bank loan |
|
10.0 |
|
|
|
22.5 |
|
Current Liabilities |
1.9 |
|
|
Trade Payables |
2.2 |
|
|
Overdraft |
|
4.1 |
|
Total equity and liabilities |
|
26.6 |
The long-term bank loan has a fixed annual interest rate of 8% per year. APX pays
The following accounting ratios have been
- Gross profit margin:30%
- Operating profit margin:20%
- Dividend payout ratio:50%
- Inventory turnover period:110 days
- Trade receivables period: 65 days
- Trade payables period: 75 days
Overdraft interest in the next year is forecast to be $140,000. No change is expected in the level of non-current assets and
Required:
- Prepare the following forecast financial statements for APX Co using the information provided: (i) An income statement for the next year; and (ii) A statement of financial position at the end of the next year.
- Analyze and discuss the
working capital financing policy of APX Co. - Analyze and discuss the forecast financial performance of APX Co in terms of working capital management.
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