Showing posts with label developing. Show all posts
Showing posts with label developing. Show all posts

        The Haverly Company expects to finish the current year with the following financial results, and is developing its Annual Plan for next year.


 



HAVERLY COMPANY



THIS YEAR



INCOME STATEMENT



($000)



                                                                            $                                    %               



                            Revenue                                    $73,820                      100.0



                            COGS                                 31,743                              43.0



                                   Gross Margin                               $42,077                              57.0



 



                            Expenses:



                                  Marketing                                 $17,422                              23.6



                                  Engineering                       7,087                                9.6



                                  Fin & Admin                      7,603                              10.3



                                Total Expense              $32,112                              43.5



 



                            EBIT                                            $  9,965                              13.5



                            Interest                                   $  2,805                  3.8



                            EBT                                             $  7,160                   9.7



                            Income Tax                                 $  3,007                   4.1



                            EAT                                             $  4,153                   5.6



  



HAVERLY COMPANY



THIS YEAR



INCOME STATEMENT



($000)



                                       ASSETS                 LIABILITIES & EQUITY



Cash                                           $  8,940                            Accounts Payable                 $ 1,984



Accounts Rec.                            $12,303                            Accruals                                    $    860



Inventory                                 $  7,054                    Current Liabilities                 $ 2,844



    Current Assets               $28,297



                                                                              Long Term Debt                $22,630



Fixed Assets                                                        Equity



    Gross                                    $65,223                   Stock Accounts                  $18,500



    Accum. Deprec.        ($23,987)                  Retained Earn.              $25,559



    Net                                           $41,236                    Total Equity                              $44,059



 



Total Assets                              $69,533                            Total L&E                                   $69,533



 



     The following facts are available



       1. Payables are almost entirely due to inventory purchases, and can be estimated through COGS, which is approximately 45% purchased material. 



       2. Currently owned assets will depreciate an additional $1,840,000 next year.



       3. There are two balance sheet accruals.  The first is for unpaid wages.  The current payroll of $32 million is expected to grow by 12% next year.  The closing date of the year will be six working days after a payday.  The second accrual is an estimate of the cost of purchased items that have arrived in inventory, but for which vendor invoices have not yet been received.  This materials accrual is generally about 10% of the payables balance at year end.



       4. The combined state and federal income tax rate is 42%.



       5. Interest on current and future borrowing will be at a rate of 12%.



 



PLANNING ASSUMPTIONS



Income Statement Items



       1. Revenue will grow by 13% with no change in product mix.  However, competitive pressure is expected to force some reductions in pricing.



       2. The pressure on prices will result in a 1.5% deterioration in next year's cost ratio.



       3. Spending in the marketing department is considered excessive and will be held to 21% of revenue next year. 



       4. Due to a major development project, expenses in the engineering department will increase by 20%. 



       5. Finance and administration expenses will increase by 6%.



 



Assets and Liabilities



       6. An enhanced cash management system will reduce cash balances by 10%.



       7. The ACP will be reduced by 15 days.  (Calculate the current value to arrive at the target.)



       8. The inventory turnover ratio (COGS/Inv.) will decrease by .5.



       9. Capital spending is expected to be $7 million.  The average depreciation life of the assets to be acquired is five years.  The firm uses straight-line depreciation, and takes a half-year in the first year. 



      10. Bills are currently paid in 50 days.  Plans are to shorten that to 40 days.



      11. A dividend totaling $1.5 million will be paid next year.  No new stock will be sold.



 



     Develop next year's financial plan for Haverly based on these assumptions and last year's financial statements.  Include a projected income statement, balance sheet and a statement of cash flows.