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Pro Forma Statements

In: Business and Management

Submitted By Yqgarrett
Words 396
Pages 2
Quinniece Garrett
Individual: Pro Forma Statements

Comprehensive Problem: Landis Corporation

The Landis Corporation had 2008 sales of $100 million. The balance sheet items that vary directly with sales and the profit margin are as follows: Percent
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5%
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . 15
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Net fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . 40
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . 15
Accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Profit margin after taxes . . . . . . . . . . . . . . . . . . 6%

The dividend payout rate is 50 percent of earnings, and the balance in retained earnings at the end of 2008 was $33 million. Common stock and the company’s long-term bonds are constant at $10 million and $5 million, respectively. Notes payable are currently $12 million.
A- How much additional external capital will be required for next year if sales increase 15 percent? (Assume that the company is already operating at full capacity.)
B- What will happen to external fund requirements if Landis Corporation reduces the payout ratio, grows at a slower rate, or suffers a decline in its profit margin?
Discuss each of these separately.
C- Prepare a pro forma balance sheet for 2009 assuming that any external funds being acquired will be in the form of notes payable. Disregard the information in part b in answering this question (that is, use the original information and part a in constructing your pro forma balance sheet).

Sales increase = 100 * 15% = $15 million
Asset increase = 5% + 15% + 25% + 40% = 85%
Liabilities increase = 15% +10% = 25%
The necessity for External Financing = 15 * 85%...

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