VS has experienced rapid growth over the past several years. Sales are expected to grow @11% per annum for the next three years.
Asset growth has been financed by internal funds as well as the increased use of debt. At the end of 2015 debt was restructured with a new 7-year loan with principal payments of $1m per year and an interest rate of 6%.
VS working capital line (notes payable) was increased to a maximum of 3.5 million in 2015. Interest was charged @6% VS would like to keep its line of credit at $2.5 million.
VS is planning to pay out dividends of $600,000 per annum.
Assume Gross Fixed Assets will be 24% of Revenue and Depreciation will be 2.00% of Revenue.
Cash balances will be kept at around $300,000 and the firm has a 30% tax rate.
Prepare Common Size Statements (%age of Sales) for both I/S & B/S.
Prepare pro-forma statements (I/S and B/S) for VS and determine their need for funds for the years 2018-2020.
Assume VS has a cost of capital of 10%. Is VS expected to have satisfactory financial performance in 2018.
What would happen to VS’s profit, need for funds and ROIC if A/R was decreased to 63 days and A/P was increased to 50 days for the period 2018-2020.
If expected sales growth fell to 7% in 2018 through 2020 per annum what would be VS’s need for funds using your assumptions from question 2?
What is the impact on need for funds and profitability if inventory days are reduced to 70Days for the period 2018-2020 using your assumptions from question 2.
2013
|
2014
|
2015
|
2016
|
2017
|
Forecast |
|
|
|
|
|
|
ASSETS |
2,363 |
1,178 |
899 |
470 |
250 |
|
Cash |
7,579 |
8,143 |
9,267 |
11,325 |
13,589 |
|
Accounts receivable |
5,982 |
7,035 |
7,852 |
9,558 |
11,623 |
|
Inventory |
15,924 |
16,356 |
18,018 |
21,353 |
25,462 |
|
Current assets |
|
|
|
|
|
|
|
8,345 |
8,989 |
11,606 |
13,897 |
15,745 |
|
Gross Fixed Assets |
3,152 |
3,830 |
4,655 |
5,753 |
7,100 |
|
Accum. Depreciation |
5,193 |
5,159 |
6,951 |
8,144 |
8,645 |
|
Net fixed assets |
21,117 |
21,515 |
24,969 |
29,496 |
34,107 |
|
Total assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITIES |
8,837 |
6,628 |
6,398 |
7,294 |
7,699 |
|
Accounts payable |
|
1,798 |
123 |
3,337 |
4,500 |
|
Notes payable (line of credit) |
|
|
1,000 |
1,000 |
1,000 |
|
Curent Portion LTD |
243 |
299 |
425 |
566 |
818 |
|
Accruals |
9,080 |
8,725 |
7,946 |
12,197 |
14,017 |
|
Current liabilites |
4,858 |
5,258 |
8,307 |
7,358 |
8,837 |
|
Long-term debt |
13,938 |
13,983 |
16,253 |
19,555 |
22,854 |
|
Total Liabilities |
500 |
500 |
500 |
500 |
500 |
|
Common stock |
6,679 |
7,031 |
8,216 |
9,442 |
10,753 |
|
Retained earnings |
7,179 |
7,531 |
8,716 |
9,942 |
11,253 |
|
Total Equity |
21,117 |
21,515 |
24,969 |
29,496 |
34,107 |
|
Total Equity & Liab. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
2014
|
2015
|
2016
|
2017
|
|
|
|
|
|
|
|
|
|
40,977 |
43,589 |
48,189 |
54,981 |
65,148 |
|
Sales |
|
|
|
|
|
|
|
3,780 |
5,982 |
7,035 |
7,852 |
9,558 |
|
Beginning Inventory |
31,470 |
34,351 |
37,587 |
43,882 |
53,128 |
|
Purchases |
35,250 |
40,333 |
44,622 |
51,734 |
62,686 |
|
Goods Available for Sale |
5,982 |
7,035 |
7,852 |
9,558 |
11,623 |
|
Less: Ending Inventory |
29,268 |
33,298 |
36,770 |
42,176 |
51,063 |
|
Cost of Goods |
11,709 |
10,291 |
11,419 |
12,805 |
14,085 |
|
Gross Profit |
|
|
|
|
|
|
|
2,949 |
3,493 |
3,773 |
4,265 |
4,810 |
|
G and A expenses |
2,418 |
2,542 |
2,673 |
2,813 |
3,085 |
|
Fixed operating expenses |
1,087 |
678 |
825 |
1,098 |
1,347 |
|
Depreciation |
510 |
666 |
716 |
825 |
914 |
|
Miscellaneous |
6,964 |
7,378 |
7,988 |
9,001 |
10,156 |
|
Total operating expenses |
4,745 |
2,913 |
3,431 |
3,805 |
3,929 |
|
EBIT |
486 |
465 |
621 |
770 |
944 |
|
Interest |
4,259 |
2,448 |
2,810 |
3,034 |
2,985 |
|
EBT |
1,278 |
734 |
843 |
910 |
895 |
|
Taxes |
2,982 |
1,714 |
1,967 |
2,124 |
2,089 |
|
Net income |