Question 19.A.1: Financial Statement Items Often Vary with Sales PROBLEM: Yo...
Financial Statement Items Often Vary with Sales
PROBLEM: You have the following information: (1) sales this year are $50 million; (2) sales are expected to grow by 20 percent next year; and (3) for the current year, accounts receivable are 7 percent of sales and inventory is 10 percent of sales. Your boss has asked you to estimate next year’s sales, accounts receivable, and inventory.
APPROACH: You can rearrange Equation 19.1 to find next year’s sales level (S_ {t+1}). Then, assuming accounts receivable and inventory grow proportionately with sales, you can use the result to calculate the expected levels of accounts receivable and inventory for next year.
\begin{matrix} \% \Delta S &=& \frac{(S_{t+1}-S_t)}{S_t} &&&&& 19.1 \\ \\ 0.2 &=& \frac{(S_{t+1} – \$50,000,000)}{\$50,000,000} \\ \\ S_{t+1} &=& (0.2 \times \$50,000,000)+\$50,000,000 \\ \\ &=& \$60,000,000 \\ \\ Accounts \ receivable &=& \$60,000,000 \times 0.07 =\$4,200,000 \\ \\ Inventory &=& \$60,000,000 \times 0.10 = \$6,000,000 \end{matrix}
Related Answered Questions
Question: 19.A.3
Verified Answer:
Sales = $100 million × 1.133 = $113.30 millionCost...
Question: 19.2
Verified Answer:
DECISION: You begin by applauding the visionary na...
Question: 19.1
Verified Answer:
DECISION: Sleepy Hollow’s current leverage ratio o...
Question: 19.A.2
Verified Answer:
The calculations for the new dividend payout and t...
Question: 19.ss.1
Verified Answer:
Starlight, Inc. Balance Sheet as of June 30, 2012
...
Question: 19.ss.2
Verified Answer:
The pro forma income statement is the same as that...
Question: 19.ss.3
Verified Answer:
The retention (plowback) ratio, external funds nee...
Question: 19.ss.4
Verified Answer:
We calculate Northwood’s internal growth rate as f...
Question: 19.ss.5
Verified Answer:
Renewal’s sustainable growth rate is:
\begi...