Problems:
Finance : Income, Cash Flow, Balance Sheets, Forecasting and Sustainable Growth
1. During 1998, the Senbet Discount Tire Company had gross sales of $1 million. The frim's cost of googs sold and selling expenses were $300,000 and $200,000, respectively. These figures do not include depreciation. Senbelt also had notes payable of $1 million. These notes carried an interest rate of 10 percent. Depreciation was $100,000. Senbet's tax rate in 1998 was 35 percnet.
a. What was Senbet's net operating income?
b. What were the firm's earnings before taxes?
c. What was Senbet's net income?
d. What was Senbet's operating cash flow?
2. Cheryl Colby, the CFO of Charming Florist Ltd., has created the firm's pro forma balance sheet for the next fiscal year. Sales are projected to grow at 10 percent to the level 0f $330 million. Current assets, fixed assets, short-term debt, and long-term debt are 25 percent , 150 percent, 40 percent, and 45 percent of the total sales, respectively. Charming Florist pays out 40 percent of net income. The value of common stock is constant at $50 million. The profit margin on sales is 12 percent.
a. Based on Ms. Colby's forecast, how much external fund does Charming Florist need?
b. Reconstruct the current balance sheet based on the projected figures.
c. Lay out the firm's pro forma balance sheet for the next fiscal year.
3. The Stieben Company has dtermined that the following will be true next year:
T = Ratio of total assets to sales = 1
P = Net profit margin on sales = 5%
d = Dividend-payout ratio = 50%
L = Debt-equity ratio = 1
a. What is Stieben's sustainable growth rate in sales?
b. Can Stieben's actual growth rate in sales be different from its sustainable growth rate?
Explain.
c. How can Stieben change its sustainable growth?