Forecasted Statements and Ratios
Upton Computers makes bulk purchases of small computers, stocks them in conveniently located warehouses, ships them to its chain of retail stores, and has a staff to advise customers and help them set up their new computers. Upton's balance sheet as of December 31, 2019, is shown here (millions of dollars):
| Cash |
$ 3.5 |
|
Accounts payable |
$ 9.0 |
| Receivables |
26.0 |
|
Notes payable |
18.0 |
| Inventories |
58.0 |
|
Line of credit |
0 |
| Total current assets |
$ 87.5 |
|
Accruals |
8.5 |
| Net fixed assets |
35.0 |
|
Total current liabilities |
$ 35.5 |
| |
|
|
Mortgage loan |
6.0 |
| |
|
|
Common stock |
15.0 |
| |
|
|
Retained earnings |
66.0 |
| Total assets |
$122.5 |
|
Total liabilities and equity |
$122.5 |
Sales for 2019 were $475 million and net income for the year was $14.25 million, so the firm's profit margin was 3.0%. Upton paid dividends of $5.7 million to common stockholders, so its payout ratio was 40%. Its tax rate was 25%, and it operated at full capacity. Assume that all assets/sales ratios, (spontaneous liabilities)/sales ratios, the profit margin, and the payout ratio remain constant in 2020. Do not round intermediate calculations.
-
If sales are projected to increase by $104.5 million, or 22%, during 2020, use the AFN equation to determine Upton's projected external capital requirements. Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Round your answer to two decimal places.
$ million
-
Using the AFN equation, determine Upton's self-supporting growth rate. That is, what is the maximum growth rate the firm can achieve without having to employ nonspontaneous external funds? Round your answer to two decimal places.
%
-
Use the forecasted financial statement method to forecast Upton's balance sheet for December 31, 2020. Assume that all additional external capital is raised as a line of credit at the end of the year and is reflected (because the debt is added at the end of the year, there will be no additional interest expense due to the new debt). Assume Upton's profit margin and dividend payout ratio will be the same in 2020 as they were in 2019. What is the amount of the line of credit reported on the 2020 forecasted balance sheets? (Hint: You don't need to forecast the income statements because the line of credit is taken out on the last day of the year and you are given the projected sales, profit margin, and dividend payout ratio; these figures allow you to calculate the 2020 addition to retained earnings for the balance sheet without actually constructing a full income statement.) Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Round your answers to two decimal places.
Upton Computers
Pro Forma Balance Sheet
December 31, 2020
(Millions of Dollars)
|
| Cash |
$ |
| Receivables |
$ |
| Inventories |
$ |
| Total current assets |
$ |
| Net fixed assets |
$ |
| Total assets |
$ |
| Accounts payable |
$ |
| Notes payable |
$ |
| Line of credit |
$ |
| Accruals |
$ |
| Total current liabilities |
$ |
| Mortgage loan |
$ |
| Common stock |
$ |
| Retained earnings |
$ |
| Total liabilities and equity |
$ |
|
Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.
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