Marvin industries Inc. operates as a diversified software company worldwide. Its Digital Media segment provides tools and solutions that enable individuals, teams, and organizations to create, publish, promote, and monetize their digital content. The company is forecasting operations to determine the additional financing that will be needed to support its operations and to assess whether the firm’s anticipated performance is in line with the company’s own general targets and investors’ expectation. Marvin Industries: balance sheet as of December 31, 2020 (Thousands of dollars) Cash 2,000 Accounts Payable 7,200 Receivables 10,800 Notes Payable 3,400 Inventories 12,400 Accruals 2,620 Total current assets 25,200 Total current liabilities 13,220 Long-term debt ? Fixed assets 21,600 Common stock 2,000 Retained earnings 26,580 Total assets 46,800 Total liabilities & equity 46,800 Marvin Industries: Income Statement for December 31, 2020 (Thousands of dollars)
Marvin industries Inc. operates as a diversified software company worldwide. Its Digital Media segment provides tools and solutions that enable individuals, teams, and organizations to create, publish, promote, and monetize their digital content. The company is
Marvin Industries: balance sheet as of December 31, 2020 (Thousands of dollars)
| Cash | 2,000 | Accounts Payable | 7,200 |
| Receivables | 10,800 | Notes Payable | 3,400 |
| Inventories | 12,400 | Accruals | 2,620 |
| Total current assets | 25,200 | Total current liabilities | 13,220 |
| Long-term debt | ? | ||
| Fixed assets | 21,600 | Common stock | 2,000 |
| 26,580 | |||
| Total assets | 46,800 | Total liabilities & equity | 46,800 |
Marvin Industries: Income Statement for December 31, 2020 (Thousands of dollars)
| Sales | 36,000 |
| Operating costs | 30,000 |
| EBIT | 5,400 |
| Interest | 720 |
| Taxes @ 25% | 1,170 |
| Net income | 3,510 |
| Dividends 60% | 2,016 |
| Addition to retained earnings | 1,404 |
Total assets and accounts payable are proportional to sales, and that relationship will be maintained. Marvin has arranged to sell $5,000 of new common stock in 2021 to meet some of its financing needs. The remainder of its financing needs will be met by issuing new long-term debt at the end of 2021. The company’s net profit margin on sales is 9.75%, and 60% of earnings will be paid out as dividends. Marvin is operating at full capacity, so its assets must grow at the same rate as projected sales.
- What were Marvin’s long-term debt and total liabilities for 2020?
- Sales are projected to increase by 25% over the 2020 sales figure. Determine the forecasted change in company’s sales over the forecasting period.
- Use the AFN equation to forecast Marvin’s additional funds needed for the coming year to support the company’s growth.
(HINT: AFN = (A0*/S0)(∆S) – (L0*/S0)(∆S) – (M)(S1)(1 – payout) – new common stock)
- Explain how the following factors affect external capital requirements:
- payout ratio
- capital intensity
- profit margin
- Calculate the required level of fixed assets for Marvin Industries if the company operates at no excess capacity with full capacity sales of $36,000 in 2020.
- Define the term self-supporting growth rate. Determine the self-supporting growth rate for Marvin Industries.
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