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The Protek Company has been growing very fast, but profitability has declined from 11.85% to 2.36% in just two years. Costs have increased faster than sales and expenses are out of control. The Board of Directors has appointed Bob Smith to come up with some recommendations that are likely to help get the situation under control. He has made the following suggestions, but has hired you to actually put the numbers into proforma statements to present to the Board at their next meeting. Income Statement The company will slow down the growth of sales to 15% for the next year (20X4). Bob does not see any easy fixes to the cost of good sold situation, so those will go up 15% in line with sales, leading to the same gross margin percent as this past year. Bob has decided that the budgets for the Marketing and Research and Development departments should be exactly the same dollar amount as in 20X3. He feels that imposing that particular discipline to the Marketing Department will be good for them after such outrageous increases in spending over the last two years. The Research and Development Department has not increased their spending by much, but they haven’t been producing very much in the way of new products either. Bob wants to send a message here. Bob will allow the Administration Department to spend $300,000,000 a very small increase over last year. He expects this group to bring receivables under control as a priority. Bob believes that you should use $160,000,000 as the first guess at interest charges. The tax rate is still 34%. Balance Sheet Bob wants to hold the cash balance at $60 million. He has charged the staff in Administration to get the ACP down to 60 days in 20X4. He believes that inventory turn can be improved back to 6 times. Depreciation is expected to be the same as in 20X3 ($275 million) with no changes in Gross Fixed Assets. He believes that accruals will stay at $30,000,000 and Accounts Payable should end the year around $150 million. The company will continue to use Long Term Debt as the source of funds needed to balance the Balance Sheet. You need to complete the proforma statements for 20X4 and complete the comparative ratio analysis. You also need to write a short analysis indicating how much Bob’s changes will help the Company regain its position relative to the Industry. Note: Statements are shown in millions ($000,000s) on the spreadsheet.

The Protek Company has been growing very fast, but profitability has declined from 11.85% to 2.36% in just two years. Costs have increased faster than sales and expenses are out of control. The Board of Directors has appointed Bob Smith to come up with some recommendations that are likely to help get the situation under control. He has made the following suggestions, but has hired you to actually put the numbers into proforma statements to present to the Board at their next meeting. Income Statement The company will slow down the growth of sales to 15% for the next year (20X4). Bob does not see any easy fixes to the cost of good sold situation, so those will go up 15% in line with sales, leading to the same gross margin percent as this past year. Bob has decided that the budgets for the Marketing and Research and Development departments should be exactly the same dollar amount as in 20X3. He feels that imposing that particular discipline to the Marketing Department will be good for them after such outrageous increases in spending over the last two years. The Research and Development Department has not increased their spending by much, but they haven’t been producing very much in the way of new products either. Bob wants to send a message here. Bob will allow the Administration Department to spend $300,000,000 a very small increase over last year. He expects this group to bring receivables under control as a priority. Bob believes that you should use $160,000,000 as the first guess at interest charges. The tax rate is still 34%. Balance Sheet Bob wants to hold the cash balance at $60 million. He has charged the staff in Administration to get the ACP down to 60 days in 20X4. He believes that inventory turn can be improved back to 6 times. Depreciation is expected to be the same as in 20X3 ($275 million) with no changes in Gross Fixed Assets. He believes that accruals will stay at $30,000,000 and Accounts Payable should end the year around $150 million. The company will continue to use Long Term Debt as the source of funds needed to balance the Balance Sheet. You need to complete the proforma statements for 20X4 and complete the comparative ratio analysis. You also need to write a short analysis indicating how much Bob’s changes will help the Company regain its position relative to the Industry. Note: Statements are shown in millions ($000,000s) on the spreadsheet.

Quickbooks Online Accounting
Quickbooks Online Accounting
3rd Edition
ISBN:9780357391693
Author:Owen
Publisher:Owen
Chapter7: Payroll
Section: Chapter Questions
Problem 2.13C
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The Protek Company has been growing very fast, but profitability has declined from 11.85% to 2.36% in just two years.  Costs have increased faster than sales and expenses are out of control.  The Board of Directors has appointed Bob Smith to come up with some recommendations that are likely to help get the situation under control.  He has made the following suggestions, but has hired you to actually put the numbers into proforma statements to present to the Board at their next meeting.

Income Statement

  1. The company will slow down the growth of sales to 15% for the next year (20X4). Bob does not see any easy fixes to the cost of good sold situation, so those will go up 15% in line with sales, leading to the same gross margin percent as this past year.
  2. Bob has decided that the budgets for the Marketing and Research and Development departments should be exactly the same dollar amount as in 20X3. He feels that imposing that particular discipline to the Marketing Department will be good for them after such outrageous increases in spending over the last two years.  The Research and Development Department has not increased their spending by much, but they haven’t been producing very much in the way of new products either.  Bob wants to send a message here.
  3. Bob will allow the Administration Department to spend $300,000,000 a very small increase over last year. He expects this group to bring receivables under control as a priority.
  4. Bob believes that you should use $160,000,000 as the first guess at interest charges.
  5. The tax rate is still 34%.

Balance Sheet

  1. Bob wants to hold the cash balance at $60 million.
  2. He has charged the staff in Administration to get the ACP down to 60 days in 20X4.
  3. He believes that inventory turn can be improved back to 6 times.
  4. Depreciation is expected to be the same as in 20X3 ($275 million) with no changes in Gross Fixed Assets.
  5. He believes that accruals will stay at $30,000,000 and Accounts Payable should end the year around $150 million.
  6. The company will continue to use Long Term Debt as the source of funds needed to balance the Balance Sheet.

You need to complete the proforma statements for 20X4 and complete the comparative ratio analysis.  You also need to write a short analysis indicating how much Bob’s changes will help the Company regain its position relative to the Industry.

Note:  Statements are shown in millions ($000,000s) on the spreadsheet.

AutoSave Protek Actuals 1-3 for students - Saved to my Mac OFF Home Insert Draw Page Layout Formulas Data Review View Acrobat O Tell me 2 Share O Comments Calibri (Body) - A A General Conditional Formatting v H Insert v Σ 11 E Format as Table v 5X Delete v Paste I U v A v A v $ v % 9 .00 Sort & Filter Find & Select Analyze Data Sensitivity Create and Share Adobe PDF B E Cell Styles v H Format v N2 fx A B D E F G H K L M P R U V w X Y 1 Protek Company Income Statements Common Actual Common Common 2 20X1 Size Growth 20X2 Size Growth 20X3 Size 3 Sales 1578.00 1.00 0.33 2106.00 1.00 0.55 3265.00 1.00 4 COGS 631.00 0.40 0.44 906.00 0.43 0.66 1502.00 0.46 Gross Margin 6 Expenses 947.00 0.60 0.27 1200.00 0.57 0.47 1763.00 0.54 7 Marketing 316.00 0.20 0.57 495.00 0.24 0.78 882.00 0.27 R&D 158.00 0.10 0.34 211.00 0.10 0.55 327.00 0.10 Admin 126.00 0.08 0.42 179.00 0.08 0.64 294.00 0.09 10 Total 600.00 0.38 0.48 885.00 0.42 0.70 1503.00 0.46 11 EBIT 347.00 0.22 -0.09 315.00 0.15 -0.17 260.00 0.08 12 Interest 63.00 0.04 0.51 95.00 0.05 0.51 143.00 0.04 13 EBT 284.00 0.18 -0.23 220.00 0.10 -0.47 117.00 0.04 14 Tax 97.00 0.06 -0.23 75.00 0.04 -0.47 40.00 0.01 15 Net Income 187.00 0.12 -0.22 145.00 0.07 -0.47 77.00 0.02 16 17 18 Protek Balance Sheets Changes X2-X1 Changes X3-X2 19 20 Cash 30 10 40 22 62 21 AR 175 176 351 use 239 590 use 22 Inventory 90 61 151 use 149 300 use 23 Current Assets 295 247 542 410 952 24 25 Fixed assets 26 Gross 1565 808 2373 use 345 2718 use 27 Acc Depn -610 -250 -860 -275 -1135 28 Net 955 558 1513 70 1583 29 30 Total Assets 1250 805 2055 480 2535 31 32 AP 56 25 81 source 53 134 source 33 ACC 15 5 20 source 10 30 source 34 Current Liabilities 71 30 101 63 164 35 change in NWC -207 -325 36 Capital 37 LTD 630 630 1260 Source 340 1600 source 38 Equity 549 145 694 Source 77 771 source 39 Total Liabilities and Equity 1250 805 2055 480 2535 40 41 Ratios Industry 20x1 20X2 20X3 42 Current 4.5 4.15493 5.366337 5.804878 43 Quick 3.2 2.887324 3.871287 3.97561 44 ACP 42 39.92395 60 65.0536 Sheet1 囲 四 100% 多 白
Transcribed Image Text:AutoSave Protek Actuals 1-3 for students - Saved to my Mac OFF Home Insert Draw Page Layout Formulas Data Review View Acrobat O Tell me 2 Share O Comments Calibri (Body) - A A General Conditional Formatting v H Insert v Σ 11 E Format as Table v 5X Delete v Paste I U v A v A v $ v % 9 .00 Sort & Filter Find & Select Analyze Data Sensitivity Create and Share Adobe PDF B E Cell Styles v H Format v N2 fx A B D E F G H K L M P R U V w X Y 1 Protek Company Income Statements Common Actual Common Common 2 20X1 Size Growth 20X2 Size Growth 20X3 Size 3 Sales 1578.00 1.00 0.33 2106.00 1.00 0.55 3265.00 1.00 4 COGS 631.00 0.40 0.44 906.00 0.43 0.66 1502.00 0.46 Gross Margin 6 Expenses 947.00 0.60 0.27 1200.00 0.57 0.47 1763.00 0.54 7 Marketing 316.00 0.20 0.57 495.00 0.24 0.78 882.00 0.27 R&D 158.00 0.10 0.34 211.00 0.10 0.55 327.00 0.10 Admin 126.00 0.08 0.42 179.00 0.08 0.64 294.00 0.09 10 Total 600.00 0.38 0.48 885.00 0.42 0.70 1503.00 0.46 11 EBIT 347.00 0.22 -0.09 315.00 0.15 -0.17 260.00 0.08 12 Interest 63.00 0.04 0.51 95.00 0.05 0.51 143.00 0.04 13 EBT 284.00 0.18 -0.23 220.00 0.10 -0.47 117.00 0.04 14 Tax 97.00 0.06 -0.23 75.00 0.04 -0.47 40.00 0.01 15 Net Income 187.00 0.12 -0.22 145.00 0.07 -0.47 77.00 0.02 16 17 18 Protek Balance Sheets Changes X2-X1 Changes X3-X2 19 20 Cash 30 10 40 22 62 21 AR 175 176 351 use 239 590 use 22 Inventory 90 61 151 use 149 300 use 23 Current Assets 295 247 542 410 952 24 25 Fixed assets 26 Gross 1565 808 2373 use 345 2718 use 27 Acc Depn -610 -250 -860 -275 -1135 28 Net 955 558 1513 70 1583 29 30 Total Assets 1250 805 2055 480 2535 31 32 AP 56 25 81 source 53 134 source 33 ACC 15 5 20 source 10 30 source 34 Current Liabilities 71 30 101 63 164 35 change in NWC -207 -325 36 Capital 37 LTD 630 630 1260 Source 340 1600 source 38 Equity 549 145 694 Source 77 771 source 39 Total Liabilities and Equity 1250 805 2055 480 2535 40 41 Ratios Industry 20x1 20X2 20X3 42 Current 4.5 4.15493 5.366337 5.804878 43 Quick 3.2 2.887324 3.871287 3.97561 44 ACP 42 39.92395 60 65.0536 Sheet1 囲 四 100% 多 白
AutoSave Protek Actuals 1-3 for students - Saved to my Mac OFF Page Layout Formulas Review View Acrobat O Tell me 2 Share O Comments Home Insert Draw Data Calibri (Body) • A A General Conditional Formatting v H Insert v Σ 11 E Format as Table v 5X Delete v I U v en v A v $ • % 9 Paste .00 Sort & Filter Find & Select Analyze Data Sensitivity Create and Share Adobe PDF В E Cell Styles v H Format v N2 v fx A B D E F G H K L M N R U V w X Y 44 ACP 42 39.92395 60 65.0536 45 Inv Turn 7.5 7.011111 6 5.006667 46 FA Turn 1.6 1.652356 1.391937 2.062539 47 TA Turn 1.2 1.2624 1.024818 1.287968 48 Debt Ratio 0.53 0.5608 0.662287 0.695858 49 Debt:Equity 1 1.147541 1.815562 2.075227 50 TIE 4.5 5.507937 3.315789 1.818182 51 ROS 0.09 0.118504 0.068851 0.023583 52 ROA 0.108 0.1496 0.07056 0.030375 53 ROE 0.228 0.340619 0.208934 0.09987 54 Equity Multiplier 2.1 2.276867 2.961095 3.287938 55 56 EPS 1.87 1.45 0.77 57 P/E 21 18 15 58 STOCK PRICE 39.27 26.1 11.55 59 60 Cash Flows X2 X3 61 Net Income 145 77 62 Depreciation 250 275 63 Change in Wc 64 Operating Activities -207 -325 188 27 65 66 Investing Activities 808 345 67 68 Financing Activities 69 LT Debt 630 340 70 71 Net Cash Flow 10 22 72 73 Beginning cash 30 40 74 Net Cash Flow 10 22 75 Ending Cash 40 62 76 77 78 79 80 81 82 83 84 85 86 87 Sheet1 + 囲 100% 多
Transcribed Image Text:AutoSave Protek Actuals 1-3 for students - Saved to my Mac OFF Page Layout Formulas Review View Acrobat O Tell me 2 Share O Comments Home Insert Draw Data Calibri (Body) • A A General Conditional Formatting v H Insert v Σ 11 E Format as Table v 5X Delete v I U v en v A v $ • % 9 Paste .00 Sort & Filter Find & Select Analyze Data Sensitivity Create and Share Adobe PDF В E Cell Styles v H Format v N2 v fx A B D E F G H K L M N R U V w X Y 44 ACP 42 39.92395 60 65.0536 45 Inv Turn 7.5 7.011111 6 5.006667 46 FA Turn 1.6 1.652356 1.391937 2.062539 47 TA Turn 1.2 1.2624 1.024818 1.287968 48 Debt Ratio 0.53 0.5608 0.662287 0.695858 49 Debt:Equity 1 1.147541 1.815562 2.075227 50 TIE 4.5 5.507937 3.315789 1.818182 51 ROS 0.09 0.118504 0.068851 0.023583 52 ROA 0.108 0.1496 0.07056 0.030375 53 ROE 0.228 0.340619 0.208934 0.09987 54 Equity Multiplier 2.1 2.276867 2.961095 3.287938 55 56 EPS 1.87 1.45 0.77 57 P/E 21 18 15 58 STOCK PRICE 39.27 26.1 11.55 59 60 Cash Flows X2 X3 61 Net Income 145 77 62 Depreciation 250 275 63 Change in Wc 64 Operating Activities -207 -325 188 27 65 66 Investing Activities 808 345 67 68 Financing Activities 69 LT Debt 630 340 70 71 Net Cash Flow 10 22 72 73 Beginning cash 30 40 74 Net Cash Flow 10 22 75 Ending Cash 40 62 76 77 78 79 80 81 82 83 84 85 86 87 Sheet1 + 囲 100% 多
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