Documente Academic
Documente Profesional
Documente Cultură
Ex-1
2
3
Prob-1
2
3
4
5
6
7
8
9
Topic Covered
Statement of sources and uses of funds, cash flow statement
Cash budget, determination of additional borrowing and performa balance sheet
Sustainable growth rate ratios
Clasification of BS & P&L items as sources or uses of funds
Statement of sources and uses of funds, cash flow statement and statement of working capital
Statement of sources and uses of funds and statement of working capital
Prepration of cash budget
Prepration of BS and IS using various ratios
Prepration of cash budget
Prepration of promorma income statement using cash budget
Sustainable growth rate ratios
Computation of various components of sustainable growth rate by altering standard formula
Q1Serap Jones, had the following financial statements for 20X1 and 20X2:
a- Prepare a source and use of funds on cash basis
b- Prepare an accounting statement of cash flows
c- Evaluate your finds
20X1
Assets
Cash and Equivalents
Accounts Receivable
Inventories
Current Assets
Net Fixed Assets
Total Assets
140,000
346,000
432,000
918,000
1,113,000
2,031,000
20X2
31,000
528,000
683,000
1,242,000
1,398,000
2,640,000
Accounts payables
Accruals
Bank Borrowings
Current Liabilities
Common Stock
Retained Earnings
Total
413,000
226,000
100,000
739,000
100,000
1,192,000
2,031,000
627,000
314,000
235,000
1,176,000
###
1,364,000
2,640,000
Note: Depreciation was 189,000 for 20X2 and no dividends were paid.
Ans1a-
Serap Jones
Statement of Sources and uses of funds
Sources of Funds
Funds provided by operation
Net Profit
Depreciation
(W-1)
Addition in Fixed assets
Depreciation
285,000
189,000
474,000
Ans1b-
Serap Jones
Accounting Statement of Cash Flows
Cash Flows from Operating Activities
Net profit
Adjustments to reconcile earnings to net cash provided
by operating activities
Add:
Depreciation
Changes in Current Assets and Current Liabilities
Increase in Accounts receivable
Increase in Inventories
Increase in Accounts Payable
Increase in Accruals
Net Cash Flows from Operating Activities (a)
Cash Flows from Investing Activities (b)
Increase in fixed assets
Cash Flows from Financing Activities ( C )
Increase in short-term borrowing
Net Cash flows from operating, investing and financing activities
Add: cash and cash equivalents at the beginning of the year
Cash and Cash equivalent at the end of the year
Uses of Funds
(W-1)
474,000
ition in Inventories
ition in Receivables
251,000
182,000
907,000
172,000
189,000
-
182,000
251,000
214,000
88,000
230,000
474,000
135,000
109,000
140,000
31,000
Q2-
50
530
545
1,125
1,836
Total Assets
2,961
Purchase of raw materials to produce malt are made in the month prior to the
to 60 percent of sales in the subsequent month. Payments for these purchase
month after the purchase. Labour costs, including overtime, are expected to
January, $200,000 in February, and $160,000 in March. Selling, administrativ
cash expenses are expected to be $100,000 per month for January through M
in November and December and projected sales for January through April are
November
December
500 January
600 February
a- prepare a cash budget for the months of January, February, and March.
b- Determine the amount of additional bank borrowings necessary to maintai
balance of$50,000 all times
c- Prepare a proforma balance sheet for March, 31.
Ans2a-
Nov
500
Dec
600
360
Month
Jan
Feb
Mar
The amount of financing peaks in February owing to the need to pay for purc
the previous month and higher labour costs. In March, substantial collections
on the prior month's billings, causing a large net cash inflows sufficient payoff
borrowings.
Ans2cProforma Balance Sheet
March 31
Cash
Accounts Receivable (W-1)
Inventories (W-3)
Current Assets
Net Fixed Assets
50
620
635
1,305
1,836
Total Assets
(W-1)
(W-2)
Workings
Accounts Receivable
March
February
3,141
(650 X 0.8)
(1000 X 0.1)
Sales
Less: payment for Purchases
Less: Labour costs
All Other Expenses
(W-3)
Opening Balance
Purchases (Total Pur - Total Payment , Jan - Mar)
Closing Balance Inventories
360
400
212
972
450
100
1,439
2,961
600
1,000
March
April
650
750
Jan
600
Feb
1,000
Mar
650
120
200
130
Apr
750
420
50
420
60
700
60
590
680
890
600
360
150
100
390
600
200
###
450
390
160
100
610
900
650
220
240
20 -
1,440
1,350
90
Add. Borrow
Cumm. Borrow.
20
420
220
640
240
400
520
100
620
1,439
450
400
212
1,062
450
100
1,529
3,141
2,250
1,350
510
300
1,529
545
90
635
Q3-
Zippo Industry has equity capital of$12 million, total debt of $8 million, and s
last year of $30 million.
b- Suppose now. For next year, the company has a target assets-to-sales ratio
a target net profit of .05, and a target debt-to-equity ratio of .80. It wishes to
annual dividend of $3 million and rise $1 million in equity capital next year.
What is the sustainable growth rate for next year? Why does it differ from tha
Ans3aSustainable Growth Rate
Where,
b = Retention Ration
NP/S = Net Profit divided by Sales
D/E = is the ratio of debt and equity
A/S = is the ratio of Assets to Sales
0.050001
0.616699
8.11%
Where,
E0 =
E1
New Equity
Div =
Dividend
NP/S = Net Profit divided by Sales
D/E = is the ratio of debt and equity
S/A = is the ratio of Sales to Asset
= 36.87097 X 0.0333
0.854839
= 43.13208 X 0.03333
1.437592
43.76%
The company has moved from steady state with higher target operating
efficiency, a higher debt ratio, the sale of common stock. All of these things
permit a high rate of growth in sales next year. Unless further changes in
these directions occur, the SGR will decline in future years.
5 X (0.04) X (1 +0.6667)
-(0.75 X (0.04) X (1 +0.6667)
) X (1+D/E)X (S/A)
X (1/S)
-1
1+D/E)X (S/A)
0. 3) X(1+0.8) X (1/.62)
X (1+0.8) X (1/.62)
-1
-1
-1
t operating
of these things
X 1/30
-1
r changes in
Prob1-
Galow Fish canning Company reports the following changes from the precedin
year end. Categorize each change as a source of fund or a use of fund.
Item
Cash
Accounts Receivable
Inventory
Gross fixed assets
Depreciation
Accounts Payable
Accruals
Long-term debt
Net Profits
Dividends
Change
-100
700
-300
900
1000
300
-100
-200
600
400
Ans1Item
Cash
Accounts Receivable
Inventory
Gross fixed assets
Depreciation
Net Fixed Asset
Accounts Payable
Accruals
Long-term debt
Net Profits
Dividends
Change Classification
-100 The residual
700 Use
-300 Source
900
-1000
-100 Source
300 Source
-100 Use
-200 Use
600 Source
400 Use
Assets
2 Cash
Accounts Receivable
Inventories
Fixed Assets, net
Other assets
Total assets
20X1
5
15
12
50
8
90
20X2
Kohn Corporation Income statement and Retained Earnings year ended Dece
Net Sales
Expenses
Cost of Goods Sold
Selling, general, and administrative
Depreciation
Interest
Net income before taxes
Less: Taxes
Net income
Add: Retained earnings at 12/31/X1
Subtotal
Less: Dividends
Retained Earnings at 12/31/X2
a- Prepare a source and use of funds on cash basis for 20X2 for the Kohn Corp
b- Prepare an accounting statement of cash flows.
c- Prepare a source and use of working capital statement for 20X2.
Ans2a-
Kohn Corporation
Statement of Sources and uses of funds
Sources of Funds
Funds provided by operation
Net Profit
Depreciation
3
2
3
15
6
2
43
Addition in Inventories
Addition in Receivables
Decrease in Notes Payable
Issuance of dividends
(W-1)
Addition in Fixed assets
Depreciation
5
5
10
Ans2a-
Kohn Corporation
Statement of Cash Flows
Net profit
Adjustments to reconcile earnings to net cash provided
Depreciation
Changes in Current Assets and Current Liabilities
Increase in Accounts Payable
Increase in accrued taxes
Increase in Inventories
Increase in Receivables
3
2
-3
-7
-10
3
-7
15
6
-3
-20
-2
-2
5
3
Ans2a-
Kohn Corporation
Statement of Sources and uses of Working Capital
Sources of Funds
Funds provided by operation
Net Profit
Depreciation
Decrease in other assets
Increase in long-term debt
Increase in common Stock
7 Dividends
5
3 Addition to plant
15 Increase in Working Capital
6
36
ember, 31 ( in millions):
20X1
20X2
otes Payable
ccounts Payable
ccrued Wages
ccrued Taxes
ong-term debt
ommon Stock
etained Earnings
20
5
2
3
0
20
40
0
8
2
5
15
26
44
90
100
48,000,000
25,000,000
5,000,000
5,000,000
2,000,000
37,000,000
11,000,000
4,000,000
7,000,000
40,000,000
47,000,000
3,000,000
44,000,000
Uses of Funds
Addition in Inventories
Addition in Receivables
Decrease in Notes Payable
ssuance of dividends
(W-1)
10
3
7
20
3
43
Uses of Funds
Dividends
Addition to plant
ncrease in Working Capital
3
10
23
36
4
7
12
23
40
Total assets
63
20X1 20X2
5 Accounts Pay
10 Notes Payabl
15 Accrued Wag
30 Accrued Taxe
40
Current
Long-term de
Common Sto
Retained Ear
70 Total Liabilit
Net Sales
Cost of Goods Sold
Selling,general,andadministrative expenses
Depreciation
Interest
Net income before taxes
Taxes
Net income
8
5
2
3
18
20
10
15
63
10
5
3
2
20
20
10
20
70
95
50
15
3
2
70
25
10
15
Ans3a-
Sennet Corporation
Statement of Sources and uses of funds
Sources of Funds
Uses of Funds
15 Addition in Invento
3
3 Addition in Receiv
3
18 Decrease in Accrue
1
Addition in Fixed a
3
2 Dividends (balanci 10
1 Increase in Cash
1
21
21
(W-1)
Addition in Fixed assets
Depreciation
3
3
Ans3b-
Sennet Corporation
Statement of Sources and uses of Working Capital
Sources of Funds
Funds provided by operation
Net Profit
Depreciation
Current assets
Current liabilities
Working Capital
Increase in Working Capital
Uses of Funds
15 Dividends
3
Addition to plant
Increase in Workin
10
18
18
20X1 20X2
23
30
18
20
5
10
5
3
5
Prob4-
Prepare the cash budget for ACE Manufacturing Company indicating rec
disbursements for May, June, and July. The firm wishes to maintain a cas
balance of $20,000 at all times. Determine whether or not borrowing wi
necessary during the period, and if it is when and for how much. As of A
the firm had a balance of $20,000 in cash.
Actual Sales
January
February
March
April
Forecasted Sales
50,000
50,000
60,000
60,000
May
June
July
August
Accounts Receivable: 50 percent of the total sales are for cash. The re
50 percent will be collected equally during the following 2 months (the
a negligible bad debt loss)
Cost of goods manufactured: 70 percent of sales, 90 percent of this
the first month after incurrence, the remaining 10 percent is paid in the
Sales and administrative expenses: $10,000 per month plus 10 per
expenses are paid in the month of incurrence.
Interest payments: Semiannual interest of $18,000 is paid during July
in sinking-fund payment is also made at that time.
Dividends: A $10,000 dividend payment will be declared and made in
Capital Expenditure: $40,000 will be invested in plant and equipment
Taxes: Income tax payment of $1,000 will be made in July.
Ans4ACE Manufacturing Company
Cash Budget
Jan
Sales
50,000
Feb
50,000
Cash Receipts
Cash Sales
Credit Sales
50% Apr in May and Jun
50% May in June & July
50% Jun in July & Aug
Mar
60,000
Apr
60,000
30,000
30,000
15,000
Cash Payments
Cost of Good Manufactured
90% Payment of goods manufactured
42,000
42,000
37,800
Forecasted Sales
70,000
80,000
100,000
100,000
May
70,000
Jun
80,000
Jul
100,000
Aug
35,000
15,000
15,000
40,000
15,000
17,500
50,000
50,000
20,000
###
65,000
72,500
17,500
20,000
87,500
49,000
56,000
70,000
70,000
37,800
44,100
50,400
63,000
4,200
17,000
4,200
18,000
4,900
20,000
18,000
50,000
10,000
40,000
59,000
106,300
1,000
154,300
6,000 -
33,800 -
66,800
20000
26,000 -
7,800
7,800 -
74,600
26,000 -
27,800
20,000
94,600
20,000
5,600
Prob5-
Downeast Nautial Company expects sales of $2.4 million next year and expec
sales of the same amount the following year. Sales are spread evenly through
the year. On the basis of the following information, prepare a proforma balan
sheet and income statement for year end:
Cash
Accounts Receivable
Inventories
Net fixed assets
Accounts payable
Accruals
Bank borrowing
Long-term debt
Common Stock
Retained Earnings
Net profit margin
=
=
=
=
=
=
=
=
=
=
=
Dividends
Cost of goods sold
Purchases
Income Taxes
=
=
=
=
none
60 percent of sales
50 percent of cost of goods sold
50 percent of before-tax profit
2,400,000
1,440,000
960,000
576,000
384,000
192,000
192,000
192,000
500,000
692,000
96,000
400,000
180,000
676,000
500,000
1,176,000
60,000
72,000
27,000
159,000
225,000
Common Stock
Retained Earnings
Total Liabilities and Equity
100,000
692,000
1,176,000
Workings W-1
1Sales
2345= 1/4
Days in year
Turnover in days
Accounts Receivable Turnover
Accounts Receivable
W-2
Cost of Goods Sold
Inventory Turnover Ratio
Inventory
2,400,000
360
60
6
400,000
1,440,000
8
180,000
W-3
Cost of Goods Sold
Purchases 50% of COGS
Accounts Payable (720,000/12)
nt of annual sales
ection period based on annual sales
orrow up to $250,000
are payable at year end
ons planned
f goods sold
-tax profit
1,176,000
-
1,440,000
720,000
60,000
Prob6Given the Information that follows, for Central City Department Store
for the first 6 months of 20X2 under the following assumptions:
a- All prices and costs remain constant.
b- Sales are 75 percent for credit and 25 percent for cash.
c- In terms of credit sales, 60 percent are collected in the month after the
sales, 30 percent in the second month and 10 percent in the third. Bad debt
loses are insignificant.
d- Sales, actual and estimated:
October 20X1
November 20X1
December 20X1
January 20X1
February 20X1
300,000
350,000
400,000
150,000
200,000
30000
40000
March
April
Ans6-
225,000
Nov
350,000
Dec
400,000
262,500
300,000
Cash Payments
Purchases
Wages and salaries
Rent
Interest
Tax Prepayment
Capital Expenditure
75,000
87,500
135,000
100,000
157,500
67,500
75,000
222,500
325,000
280,000
320,000
120,000
Fawrwa No.
34663261
rtment Store
March 20X2
April 20X2
May 20X2
June 20X2
July 20X2
200,000
300,000
250,000
200,000
300,000
50000
50000
May
June
40000
35000
mber, 31 20X1.
be borrowed in
uch borrowings.)
Jan
150,000
Feb
200,000
Mar
200,000
Apr
300,000
May
250,000
112,500
150,000
150,000
225,000
187,500
37,500
180,000
78,750
22,500
50,000
67,500
90,000
26,250
50,000
90,000
33,750
30,000
75,000
90,000
45,000
11,250
62,500
135,000
45,000
15,000
318,750
233,750
203,750
221,250
257,500
160,000
30,000
2,000
-
160,000
40,000
2,000
-
240,000
50,000
2,000
7,500
-
200,000
50,000
2,000
50,000
-
160,000
40,000
2,000
-
192,000
202,000
299,500
302,000
202,000
80,750
55,500
162,750
82,000
20,000
102,000
82,000
137,500
126,750
31,750 -
95,750 -
100,000
226,750
226,750
258,500
258,500
162,750
226,750
258,500
162,750
137,500
June
200,000
July
300,000
150,000
225,000
50,000
112,500
67,500
15,000
75,000
90,000
56,250
22,500
245,000
243,750
240,000
35,000
2,000
7,500
30,000
314,500
-
69,500
137,500
68,000
35,000
103,000
Prob7Use the cash budget worked out in problem 6 and with the following
additional information prepare a proforma income statement for the
first half of 20X2 for the Central City Department Store.
a- Inventory at December, 31 20X1 was $200,000.
b- Depreciation is taken on straight line basis on $250,000 of assets with
an average remaining life of 10 years and no salvage value. It is recorded
as an operating expense apart from cost of goods sold.
c- tax rate is 40 percent.
Operating Loss
Taxes 40%
After Tax loss
1,300,000
1,040,000
260,000
245,000
12,000
15,000
12,500
284,500
-
24,500
9,800
14,700
Prob8Liz Clarison Industries has $40 million in shareholders' equity and sales of
$150 million last year.
a- its target ratios are asset-to-sales ratio, .40 net profit margin, .07; debt-toequity ratio, .50; and earnings retention , .60. if these ratios respond to stead
state, what is its sustainable growth rate?
b- If instead of these ratios, what would be sustainable growth rate next year
the company moved from steady state and had the following targets? Asset-t
ratio, .42, net profit margin, .06, debt-to-equity ratio, .45, dividend of $5 milli
and no new equity financing.
Ans8aSustainable Growth R =
Where,
b = Retention Ration
NP/S = Net Profit divided by Sales
D/E = is the ratio of debt and equity
A/S = is the ratio of Assets to Sales
0.063
0.337
18.69%
Sustainable Growth R =
Where,
E0 =
E1
New Equity
Div =
Dividend
NP/S = Net Profit divided by Sale
D/E = is the ratio of debt and equity
S/A = is the ratio of Sales to Asset
= 120.8333 X 0.00667 -1
0.792857
= 152.4024 X 0.00667 -1
1.016524 -1
1.65%
Moving to lower relatively profitability and a lower debt ratio, which may be a one
shot occurrence, lowers dramatically the sustainable growth rate. The change is debt
affects the level of overall assets, not just the growth component.
X (1+ D/E)
07) X (1 +0.5)
(0.07) X (1 +0.5)
X (1/S)
-1
2.380952
/E)X (S/A)
1+0.45) X (1/.42)
X 1/150
-1
+0.45) X (1/.42)
0.006667 -1
Prob9-
a- Holding the other two target ratios constant, what asset-to-sales ratio wou
b- Holding the other two ratios constant, what net profit margin would be nec
c- Holding the other two ratios constant, what debt-to-equity ratio would be n
S/A =
(1+SGR X S)
1+D/E (E0 +E1 - Div+(NP/S) X (1+SGR) X S
=
=
1.35 X 30
1.6 X (12+0.5-0)+(0.08X1.35X30)
40.5
1.608164
25.184
A/S
= 1/A/S
=1/1.60816
= 0.62183
Ans9bNP/S =
=
=
=
Ans9c-
1
(1+D/E) X(S/A)
1
(1+.6) X1/.67)
1
2.3880597015
0.41875
=
11.01%
D/E
(1+SGR) X S
E0 + E1 -Div + (NP/S X 1+SGR XS) X (1/A/S)
1.35 X 30
((12+.5) +(0.08 X 1.35 X 30 )X (1/.67)
40.5
-1
23.49254
1.723952 -1
0.724
) X (1+ D/E)
S) X (1+SGR) X S
=1/1.60816
-1
-1