Forecasted Financial statements

Main points:
1. All the items of income statement are changed with respect to sales
2. All the sales relate items of balance sheet are changed with respect to sales
𝑖𝑡𝑒𝑚
3. New item = 𝑠𝑎𝑙𝑒𝑠 𝑓𝑜𝑟 𝑙𝑎𝑠𝑡 𝑦𝑒𝑎𝑟 * expected sales
OR
𝑛𝑒𝑤−𝑒𝑥𝑖𝑠𝑡𝑖𝑛𝑔
Percentage change = 𝑒𝑥𝑖𝑠𝑡𝑖𝑛𝑔
Practice question:
Sales for the last year = Rs. 1400,000
Expected sales = Rs 1580,000
Net profit margin = 20%
Dividend payout ratio =30%
In next year Rs. 200,000 will be spend on construction of plant and equipment.
Expected depreciation will be Rs 167,000 on such plant and equipment
Balance sheet
Assets Last year Expected Liabiliti Last year Expected
es
Current assets: Current liabilities
Cash 45,000 50,786 Accoun 524,000 591,371
ts
payable
Marketable 257,000 290,043 Work in 57,000 64,329
securities process
Account 572,000 645,543 Notes 316,000 356,628
receivable payable
Inventory 512,000 577,828
1386,000 1,564,200 897,000 1,012,328
Non-current assets: Long-term liabilities
Fixed assets 6166,000 6,366,000 Long-te 1000,000 952,402
rm
liabilitie
s
Depreciatio (1852,000) (2,019,000)
n allowance
4314,000 4,347,000 1,000,00
0
Equity:
 Commo 2300,000 2,222270
n stock
Retaine 1503,000 1,724,200
d
earning
s

5700,000 5,911,200 5700,000 5,911,200

1. Forecasted retained earnings:

Retained earnings 1,503,000
Net profit for coming year:
Expected sales*net profit margin
1580,000*20% 316,000
Dividend payout 30% (94,800) 221,200
Forecasted retained earnings 1,724,200

2. Forecasted additional fund required:

Forecasted total assets Rs 5,911,200
Less:
Forecasted current liabilities 1,012,328
Forecasted retained earnings 1,724,200 (2,736,528)
Forecasted additional fund required 3,174,672

𝑙𝑜𝑛𝑔𝑡𝑒𝑟𝑚 𝑑𝑒𝑏𝑡
3. Debt –to –total fund ratio of last year= 𝑐𝑜𝑚𝑚𝑜𝑛 𝑠𝑡𝑜𝑐𝑘+𝑙𝑜𝑛𝑔 𝑡𝑒𝑟𝑚 𝑙𝑎𝑜𝑛

1,000,000
Debt –to –equity ratio of last year = 2,300,000+1000,000
0.30

4. Forecasted additional fund raised:

Long term liabilities 952,402
Common stock 2,222270
Forecasted additional fund required 3,174,672
5.

Forecasted Balance sheet

Assets Rs Liabilities Rs.
Current assets: Current liabilities
Cash 51,750 Accounts payable 602,600
Marketable securities 295,550 Work in process 65,550
Account receivable 657,800 Notes payable 363,400
Inventory 588,800 1031,550
1,593,900 Long-term liabilities
Non-current assets:
Fixed assets 6366,000 Equity:
Depreciation allowance (2,019,000) Common stock
4347,000 Retained earnings 1,519,560

Total assets 5,940,900 Total equity and 5,940,900

liabilities

Calculation:
𝑎𝑐𝑐𝑜𝑢𝑛𝑡 𝑟𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒
1. Forecasted account receivable= 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑠𝑎𝑙𝑒𝑠
*expected sales
 572,000
Forecasted account receivable= 1200,000
*1380,000

Forecasted account receivable= 657,800

2. Forecasted retained earnings:

Retained earnings 1,503,000
Net profit for coming year:
Expected sales*net profit margin
1380,000*2% 27,600
Dividend payout 40% (11,040) 16,560
Forecasted retained earnings 1,519,560

3. Forecasted additional fund required:

Forecasted total assets 5,940,900

Less: Forecasted current liabilities 1,031,550

Forecasted retained earning 1,519,560 (2,551,110)
Forecasted additional fund required 3,389,790

Last year debt to equity ratio:

1000,000
Last year debt to equity ratio = 2300,00
=0.4348 :1

Forecasted fund arise by debt 1,473,880

Forecasted fund arise by common stock
3,389,790
Solution:
Given:
Current sales = $ 36,000
Current operation capacity = 75%
Expected sales = (Current sales/current operating capacity rate)*expected capacity rate
36,000/0.75
= $48,000
𝐸𝑥𝑝𝑒𝑐𝑡𝑒𝑑 𝑠𝑎𝑙𝑒𝑠−𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑠𝑎𝑙𝑒𝑠
Percentage change in sales = 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑠𝑎𝑙𝑒𝑠
* 100
48000−36000
Percentage change in sales = 36000
* 100

Percentage change in sales =33. 33%

Forecasted Income statement

Formula Expected
Sales 48,000
Operation cost 30,783 (41,044)
36,000
* 48, 000
 EBIT 6,956
interest 717
EBT 6239
Taxes @40% 2495
Net income 3744
Dividend payout ratio 60% 2246
Addition to RE 1497

Forecasted Balance sheet

Assets Rs Liabilities Rs.
Current assets: Current
liabilities:
Cash 1800
36,000
* 48 2400 Accounts 9600
payable
Receivable 14400 Notes 4629
payable
Inventories 16800 Accruals 3360
Total current 33600 Total current 17589
assets liabilities
Mortgage 7506
loan
Net fixed asset 21600 Common 2,000
stock
Retained 26,608+1497 28,105
earnings
Total 55200 Total 55200

Additional fund required:

Additional fund/loan required = forecasted Assets – Forecasted CL – Forecasted
RE-Common stock
=55,200 – 17,589 -28,105-2000
=$7,506

Existing loan =5,000

Additional loan required =7506-5000
=2506
Expected increase in interest expense =2506*12%
=300