Problem
The balance sheet of Leya Ltd. appears below:
Leya Ltd.
Balance Sheet
December 31, 2022
million
Cash 12
Accounts Receivables 20
Inventory 40
Net Fixed Assets 128
Total Assets 200
Accruals 4
Accounts Payable 20
Short term debt 16
Long term debt 60
Equity 100
Total liabilities & Equity 200
In 2022, Leya Ltd. had total sales of $120 million. The company's net profit for 2022 was $12 million and $6 million was paid out as dividends. The company is currently operating below full capacity and was considering a 50% increase in sales during 2023.
Unfortunately, they are unable to rise the funding that would be required and, as an alternative, management has decided to determine the company's sustainable growth rate and use that as the basis for a proposal to the board of directors.
Task
I. Calculate the company's sustainable growth rate and advise the company on the amount of new funding that would be required in order to achieve this level of growth in sales during 2023.
II. Assuming that the company is able to raise these funds by way of a long-term loan, prepare the company's forecast balance sheet for the year ended December 31, 2023.