Conn Man’s Shops, a national clothing chain, had sales of $440 million last year. The business has a steady net profit margin of 8 percent and a dividend payout ratio of 25 percent. The balance sheet for the end of last year is shown. Balance Sheet End of Year (in $ millions) Assets Liabilities and Stockholders' Equity Cash $ 44 Accounts payable $ 66 Accounts receivable 65 Accrued expenses 42 Inventory 95 Other payables 46 Plant and equipment 148 Common stock 88 Retained earnings 110 Total assets $ 352 Total liabilities and stockholders' equity $ 352 The firm's marketing staff has told the president that in the coming year there will be a large increase in the demand for overcoats and wool slacks. A sales increase of 10 percent is forecast for the company. All balance sheet items are expected to maintain the same percent-of-sales relationships as last year,* except for common stock and retained earnings. No change is scheduled in the number of common stock shares outstanding, and retained earnings will change as dictated by the profits and dividend policy of the firm. (Remember, the net profit margin is 8 percent.) *This includes fixed assets, since the firm is at full capacity. a. Will external financing be required for the company during the coming year?
Conn Man’s Shops, a national clothing chain, had sales of $440 million last year. The business has a steady net profit margin of 8 percent and a dividend payout ratio of 25 percent. The
| Balance Sheet End of Year (in $ millions) |
|||||
| Assets | Liabilities and |
||||
| Cash | $ | 44 | Accounts payable | $ | 66 |
| Accounts receivable | 65 | Accrued expenses | 42 | ||
| Inventory | 95 | Other payables | 46 | ||
| Plant and equipment | 148 | Common stock | 88 | ||
| 110 | |||||
| Total assets | $ | 352 | Total liabilities and stockholders' equity | $ | 352 |
The firm's marketing staff has told the president that in the coming year there will be a large increase in the demand for overcoats and wool slacks. A sales increase of 10 percent is
All balance sheet items are expected to maintain the same percent-of-sales relationships as last year,* except for common stock and retained earnings. No change is scheduled in the number of common stock shares outstanding, and retained earnings will change as dictated by the profits and dividend policy of the firm. (Remember, the net profit margin is 8 percent.)
*This includes fixed assets, since the firm is at full capacity.
a. Will external financing be required for the company during the coming year?
To meet the business financial needs and operate the business, companies raise the funds from external sources. This is known as financing. Debt and equity are the main sources of financing.
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