Industrial Supply Financial Statements
Balance Sheet
(Actual)
December 31,
2016
(Pro Forma)
December 31,
2017 Comments
Assets
Cash $ 500,000 $ 625,000 25% increase (assumption)
Accounts receivable 2,000,000 2,500,000 25% increase (assumption)
Inventories 4,000,000 5,000,000 25% increase (assumption)
Total current assets $ 6,500,000 $ 8,125,000
Fixed assets, net $ 1,000,000 $ 1,250,000 25% increase (assumption)
Total assets (A) $ 7,500,000 $ 9,375,000
Liabilities and Equity
Accounts payable (CL) $ 1,500,000 $ 1,875,000 25% increase (assumption)
Notes payable 1,000,000 1,750,000 $1,000,000 þ AFN ¼
$1,000,000 þ $750,000
Total current liabilities $ 2,500,000 $ 3,625,000
Long-term debt 500,000 500,000 No change (assumption)
Stockholders’ equity 4,500,000 5,250,000 $4,500,000 þ R=E ¼
$4,500,000 þ $750,000
Total liabilities and equity $ 7,500,000 $ 9,375,000
Income Statement 2016 2017
Sales (S) $15,000,000 $18,750,000 25% increase (forecasted)
Expenses, including interest & taxes 14,250,000 17,750,000 Forecasted
Earnings after taxes (EAT) $ 750,000 $ 1,000,000
Dividends paid (D) 250,000 250,000 No change (assumption)
Retained earnings $ 500,000 $ 750,000
Selected Financial Ratios
Current ratio 2.60 times 2.24 times Decreased
Debt ratio 40% 44% Increased
Return on stockholders’ equity 16.7% 19.0% Increased
Net profit margin on sales 5.0% 5.33% Increased Consider the Industrial Supply Company example (Table 4.4) again. Assume that the company plans to maintain its dividend payments at the same level in 2017 as in 2016. Also, assume that all of the additional financing needed is in the form of short-term notes payable. Determine the amount of additional financing needed and pro forma financial statements (that is, balance sheet, income statement, and selected financial ratios) for 2017 under each of the following conditions: Increase in Sales Increase in Expenses
a. $3,750,000 $3,750,000
•b. $3,000,000 $2,800,000
c. $4,500,000 $4,000,000 do the math