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Should Ian Stoddart be satisfied with the 2014 financial projections?

Should Ian Stoddart be satisfied with the 2014 financial projections?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Revenue Cost of sales Gross margin Other expenses Finance costs Total expenses Profit before taxes Income tax expense Profit for the year Projected Statement of Income For the year ended December 31, 2014 $2,000,000 (1,200,000) (600,000) (25,000) 800,000 (625,000) 175,000 (65,000) $110,000 Question Should Ian Stoddart be satisfied with the 2014 financial projections?
Transcribed Image Text:Revenue Cost of sales Gross margin Other expenses Finance costs Total expenses Profit before taxes Income tax expense Profit for the year Projected Statement of Income For the year ended December 31, 2014 $2,000,000 (1,200,000) (600,000) (25,000) 800,000 (625,000) 175,000 (65,000) $110,000 Question Should Ian Stoddart be satisfied with the 2014 financial projections?
EXERCISE 1: FINANCIAL RATIOS Ian Stoddart was reviewing his company's 2013 year-end financial estimates, and he was not satisfied with the overall performance. He asked his management team to prepare their detailed operational plans for 2014 and provide their operating budgets to the controller so that he could consolidate the budgets and present, in the latter part of November, the company's financial projections for 2014. As he pointed out to his team, "The financial projections should be better than the year-end 2013 estimates. We have to achieve four basic financial objectives related to liquidity, solvency, and productivity, and our return on revenue (profitability) should be at least 4% and return on total assets more than 6%. "The specific objectives for 2014 that I have in mind are as follows: Regarding liquidity, our current ratio should not be less than 1.5 times. • For solvency, our debt-to-total-assets ratio should be maintained at no more that 50% and times-interest-earned should be more than 5.0 times. . The productivity of our total assets should be 1.5 times, the average col- lection period for our trade receivables should be maintained at less than 45 days, and our inventory turnover should be more than 4 times; • With respect to profitability, our return on revenue should be at least 4% and return on total assets over 6%." . During the second week of November, the controller presented the projected 2014 financial statements to the management committee. Non-current assets Property, plant, and equipment Current assets Inventories Trade receivables Cash Total current assets Projected Statement of Financial Position As at December 31, 2014 Total assets $ 800,000 400,000 300,000 20,000 720,000 $1,520,000 Equity Non-current liabilities Long-term borrowings Current liabilities Trade and other payables Short-term borrowings Total current liabilities Total liabilities Total equity and liabilities $ 800,000 300,000 250,000 170,000 420,000 720,000 $1,520,000
Transcribed Image Text:EXERCISE 1: FINANCIAL RATIOS Ian Stoddart was reviewing his company's 2013 year-end financial estimates, and he was not satisfied with the overall performance. He asked his management team to prepare their detailed operational plans for 2014 and provide their operating budgets to the controller so that he could consolidate the budgets and present, in the latter part of November, the company's financial projections for 2014. As he pointed out to his team, "The financial projections should be better than the year-end 2013 estimates. We have to achieve four basic financial objectives related to liquidity, solvency, and productivity, and our return on revenue (profitability) should be at least 4% and return on total assets more than 6%. "The specific objectives for 2014 that I have in mind are as follows: Regarding liquidity, our current ratio should not be less than 1.5 times. • For solvency, our debt-to-total-assets ratio should be maintained at no more that 50% and times-interest-earned should be more than 5.0 times. . The productivity of our total assets should be 1.5 times, the average col- lection period for our trade receivables should be maintained at less than 45 days, and our inventory turnover should be more than 4 times; • With respect to profitability, our return on revenue should be at least 4% and return on total assets over 6%." . During the second week of November, the controller presented the projected 2014 financial statements to the management committee. Non-current assets Property, plant, and equipment Current assets Inventories Trade receivables Cash Total current assets Projected Statement of Financial Position As at December 31, 2014 Total assets $ 800,000 400,000 300,000 20,000 720,000 $1,520,000 Equity Non-current liabilities Long-term borrowings Current liabilities Trade and other payables Short-term borrowings Total current liabilities Total liabilities Total equity and liabilities $ 800,000 300,000 250,000 170,000 420,000 720,000 $1,520,000
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