Financial statements

1. The Thompson Associates Corporation (TAC) has begun selling a new product and they want you to help them with next year’s pro forma financial statements.  Using the worksheet below, complete the company’s forecast.

 

Assumptions:

 

To begin with, TAC is sure sales will grow 20% next year.  Assume that is true.  Then assume that COGS, Current Assets, and Current Liabilities all vary directly with Sales (that means if sales grows a certain percentage, then the account in question will grow by that same percentage).  Assume that fixed expenses will remain unchanged and that $1500 worth of new Fixed Assets will be obtained next year.  Lastly, the current dividend policy will be continued next year.

 

Thomson Associates Corporation

Financial Forecast

 

Estimated

This year       for next year

 

Sales                           $10,000          ________

COGS                             4,000          ________

Gross Profit                      6,000          ________

Fixed Expenses                3,000          ________

Before‑Tax Profit             3,000          ________

Tax @ 33.3333%            1,000          ________

Net Profit                       $2,000          ________

 

Dividends                          $0              ________

 

Current Assets              $25,000          ________

Net Fixed Assets            15,000          ________

Total Assets                 $40,000          ________

 

Current Liabilities       $17,000 ________

Long‑term debt                3,000          ________

Common Stock                7,000          ________

Retained Earnings           13,000          ________

Total Liabs & Eq        $40,000            ________

 

(AFN) = ________

 

 

 

2. The Thompson Wonders Corporation (TWC) has begun selling a new product and they want you to help them determine if they need additional funding (AFN) next year.  Using the AFN formula method, calculate TWC’s AFN for next year (if any).

 

The company’s latest financial statements are shown below.  Sales growth next year is forecast to be 20% and the net profit margin is expected to remain the same as it is this year.  Cash, A/R, Inventory, A/P, and Accruals all vary directly with sales. The company is not operating at capacity and expects to be able to handle the increase in sales without adding fixed assets.  Also, the company expects to pay out 50% of any profits as dividends.

 

Thompson Wonders Corporation

Financial Statements

 

Historical

This year

Income statement:

Sales                                     $1,000

Costs                                      $900

Profit                              100

 

Balance Sheet:

Cash                                        $100

A/R                                          $200

Inventory                                  $200

Fixed assets                              $500

Total assets                           $1,000

 

A/P                                            $50

Accruals                                     $50

N/P                                          $150

LTD                                         $400

Common Stock                        $100

Ret earnings                              $250

Total Liabilities & Equity        $1,000

 

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