Sales

January
February
March
April
May
June
July
August
September
October
November
December

1993

Projected
1994

64
88
96
88
87
95
96
1251
1474
1723
1965
940

120
140
160
140
140
140
160
1620
1840
2140
2285
1115

586

78.12
91.14
104.16
91.14
91.14
91.14
104.16
1054.62
1197.84
1393.14
1487.535
725.865

542.5
542.5
542.5
542.5
542.5
542.5
542.5
542.5
542.5
542.5
542.5
542.5

Projected sales in
1994

10000

Projected cost of
goods sold in 1994
Raw material costs
for 1994
COGS

78.12
91.14
104.16
91.14
91.14
91.14
104.16
1054.62
1197.84
1393.14
1487.535
725.865

COGM*

6510
3000
raw material cost

542.5
542.5
542.5
542.5
542.5
542.5
542.5
542.5
542.5
542.5
542.5
542.5

Other direct
manufacturing

250
250
250
250
250
250
250
250
250
250
250
250

292.5
292.5
292.5
292.5
292.5
292.5
292.5
292.5
292.5
292.5
292.5
292.5

* starting and ending inventory assumed to be 586

monthly
inventory sales
1050.38
78.12
1501.74
91.14
1940.08
104.16
2391.44
91.14
2842.8
91.14
3294.16
91.14
3732.5
104.16
3220.38 1054.62
2565.04 3762.88
1714.4
542.5
769.365
542.5
586
1128.5

cash
464.38
915.74
1354.08
1805.44
2256.8
2708.16
3146.5
2634.38
1979.04
1128.4
183.365
0

Notes payable
464.38

Left cash
413.62

Starting cash balance

200

Other manufactuing
cost payment

Incoming cash

1965
940
120
140
160
140
140
140
160
1620
1840
2140

292.5
292.5
292.5
292.5
292.5
292.5
292.5
292.5
292.5
292.5
292.5
292.5

raw material

282
250
250
250
250
250
250
250
250
250
250
250

Operating
expenses

209.5833333
209.5833333
209.5833333
209.5833333
209.5833333
209.5833333
209.5833333
209.5833333
209.5833333
209.5833333
209.5833333
209.5833333

Loan and tax

payment

Notes paid

752

35
60

35

60

cash balance

628.9166667
818.2148611
200
200
200
200
200
200
200
200
200
200

Notes payable

0
0
11.45658634
656.8428949
1248.259562
1929.038175
2554.922628
3185.501214
3835.80914
2995.994375
1929.881
615.7717739

Interest
expense on
Notes payable Interest income
0
0
0
0
0
9.361946712
14.46778631
19.16191971
23.89125911
28.76856855
22.46995781
14.4741075
4.618288305

1.381528
2.411886
1.697025
0.666667
0.666667
0.666667
0.666667
0.666667
0.666667
0.666667
0.666667
0.666667

Actual
Dec. 31,
1993
Jan.

Cash(a)
Accounts receivable(b)
Inventory(c)

Feb.

Mar.

Apr.

$200
2,905
586

$629
1,060
1,050

$818
260
1,502

$200
300
1,940

$200
300
2,391

Current assets
Net plant and
equipment(d)

$3,691

$2,739

$2,580

$2,440

$2,891

1,176

1,176

1,176

1,176

1,176

Total assets

$4,867

$3,915

$3,756

$3,616

$4,067

$282
752
88

$250
0
30

50

50

50

50

50

Current liabilities
Long-term debt(h)
Shareholders' equity

$1,172
400
3,295

$330
400
3,183

$275
400
3,077

$234
400
2,974

$789
400
2,866

Total liabilities
and equity

$4,867

$3,913

$3,752

$3,608

$4,055

Accounts payable(e)
Notes payable, bank(f)
Accrued taxes(g)
Long-term debt,
current portion

$250
0
(25)

$250
11
(77)

$250
657
(168)

$0
($2)
($4)
($8)
($12)
(a)Assumed maintenance of minimum $200,000 balance; includes excess cash in months when compa
(b)Assumed 60-day collection period.
(c)Assumed inventories maintained at December 31, 1993 level for all of 1994.
(d)Assumed equipment purchases equal to depreciation expense.

(e)Assumed equal to 30% of the current month's sales and related to material purchases of $3,000,000
This represents a 30-day payment period. Since inventories are level, purchases will follow seasonal p
(f)Plug figure.

(g)Taxes payable on 1993 income are due on March 15, 1994. On April 15, June 15, September 15, an
each of the estimated tax for 1994 are due. In estimating its tax liability for 1994, the company has th
($139,000) for its estimate and making any adjusting tax payments in 1995. Alternatively, the compan
Toy World planned to use its prior year's tax liability as its estimate and to pay $35,000 in April, June, S
(h)To be repaid at the rate of $25,000 each June and December.

Exhibit 2

Pro Forma Income Statement Under Seasonal Production, 1994 (thousands of dollars)

Jan.

Net sales
Cost of goods sold(a)

Feb.

Mar.

Apr.

May

$120
78

$140
91

$160
104

$140
91

$140
91

$42

$49

$56

$49

$49

209.58
3
1

209.58
3
2

209.58
3
2

209.58
3
1

209.58
13
1

Profit (loss) before taxes

Income taxes(d)

($170)
(58)

($162)
(55)

($155)
(53)

($163)
(56)

($173)
(59)

Net Profit

($112)

($107)

($102)

($108)

($114)

Gross profit
Operating expenses(b)
Interest expense
Interest income(c)

(a)Assumed cost of goods sold equal to 70% sales.

(b)Assumed to be same for each month throughout the year.
(c)Toy World expected to earn a 4% annualized rate of return on average monthly cash balances.

(d)Negative figures are tax credits from operating losses, and reduced accrued taxes shown on balance

May

June

July

Aug.

Sept.

Oct.

Nov.

Dec.

$200
280
2,843

$200
280
3,294

$200
300
3,733

$200
1,780
3,220

$200
3,460
2,565

$200
3,980
1,714

$200
4,425
769

$200
3,400
586

$3,323

$3,774

$4,233

$5,200

$6,225

$5,894

$5,394

$4,186

1,176

1,176

1,176

1,176

1,176

1,176

1,176

1,176

$4,499

$4,950

$5,409

$6,376

$7,401

$7,070

$6,570

$5,362

$250
2,996
6

$250
1,930
200

$250
616
224

$250
1,248
(227)

$250
1,929
(322)

$250
2,555
(381)

$250
3,186
(269)

$250
3,836
(168)

50

50

50

50

50

50

50

50

$1,322
400
2,752

$1,907
375
2,635

$2,473
375
2,520

$3,216
375
2,737

$3,968
375
3,002

$3,302
375
3,340

$2,430
375
3,717

$1,140
350
3,831

$4,474

$4,917

$5,368

$6,328

$7,345

$7,018

$6,522

$5,321

($25)
($33)
($41)
($48)
xcess cash in months when company is out of debt.

($56)

o material purchases of $3,000,000 for 1994 as against sales of $10 million.

l, purchases will follow seasonal production

($53)

($48)

($41)

pril 15, June 15, September 15, and December 15, 1994, payments of 25%
ility for 1994, the company has the option of using the prior year's tax liability
n 1995. Alternatively, the company could estimate its 1994 tax liability directly.
nd to pay $35,000 in April, June, September, and December.

n, 1994 (thousands of dollars)

June

July

Aug.

Sept.

Oct.

Nov.

Dec.

Total

$140
91

$160
104

$1,620
1,055

$1,840
1,198

$2,140
1,393

$2,285
1,488

$1,115
726

$10,000
6,510

$49

$56

$565

$642

$747

$797

$389

$3,490

209.58
17
1

209.58
22
1

209.58
27
1

209.58
32
1

209.58
25
1

209.58
17
1

209.58
7
1

2,515
174
11

($178)
(60)

($175)
(60)

$330
112

$401
136

$512
174

$571
194

$173
59

$812
276

($117)

($116)

$218

$265

$338

$377

$114

$536

rage monthly cash balances.

d accrued taxes shown on balance sheet. The federal tax rate on all earnings was 34%.

Average inventory
Inventory conversion period

2134
77.891

Recievales collection period

60

Payables deffered period

30

Cash conversion cycle

sales per day

27.39726

ROE

0.174479

ROI
ROA

0.186167
0.122868

ROE

0.144552

108 days

Inventory
Reeivables
payables
NOWC

2134
1643.836
535.0685
3242.767

Increase in NOWC

1462.101

equity

3072

Debt
Long term
Short term
Interest
Net Income

2166
385
1781
163
536

new equity on avg.

3708

Earlier

Average inventory
Inventory conversion period

586
21.389

Recievales collection period

60

Payables deffered period

30

Cash conversion cycle

Inventory
Reeivables
payables
NOWC

51.389

586
1643.836
449.169
1780.667

equity

3046

Debt
Long term
Short term
Interest
Net Income

1084
385
699
67
351

ROE

0.115233

ROI
ROA

0.115191
0.095695

Actual
Dec. 31,
1993
Jan.

Cash(a)
Accounts receivable(b)
Inventory(c)

Mar.

Apr.

$200
2,905
586

$629
1,060
1,050

$818
260
1,502

$200
300
1,940

$200
300
2,391

Current assets
Net plant and
equipment(d)

$3,691

$2,739

$2,580

$2,440

$2,891

1,176

1,176

1,176

1,176

1,176

Total assets

$4,867

$3,915

$3,756

$3,616

$4,067

$282
752
88

$250
0
30

50

50

50

50

50

Current liabilities
Long-term debt(h)

$1,172
400

$330
400

$275
400

$234
400

$789
400

Shareholders' equity

3,295

3,183

3,077

2,974

2,866

$4,867

$3,913

$3,752

$3,608

$4,055

Accounts payable(e)
Notes payable, bank(f)
Accrued taxes(g)
Long-term debt,
current portion

44,502
3708.487

Feb.

Total liabilities
and equity

$250
0
(25)

$250
11
(77)

$250
657
(168)

$0
($2)
($4)
($8)
($12)
(a)Assumed maintenance of minimum $200,000 balance; includes excess cash in months when compa
(b)Assumed 60-day collection period.
(c)Assumed inventories maintained at December 31, 1993 level for all of 1994.
(d)Assumed equipment purchases equal to depreciation expense.

(e)Assumed equal to 30% of the current month's sales and related to material purchases of $3,000,000
This represents a 30-day payment period. Since inventories are level, purchases will follow seasonal p
(f)Plug figure.

(g)Taxes payable on 1993 income are due on March 15, 1994. On April 15, June 15, September 15, an
each of the estimated tax for 1994 are due. In estimating its tax liability for 1994, the company has th
($139,000) for its estimate and making any adjusting tax payments in 1995. Alternatively, the compan
Toy World planned to use its prior year's tax liability as its estimate and to pay $35,000 in April, June, S
(h)To be repaid at the rate of $25,000 each June and December.

Exhibit 2

Pro Forma Income Statement Under Seasonal Production, 1994 (thousands of dollars)

Jan.

Net sales
Cost of goods sold(a)

Feb.

Mar.

Apr.

May

$120
78

$140
91

$160
104

$140
91

$140
91

$42

$49

$56

$49

$49

209.58
3
1

209.58
3
2

209.58
3
2

209.58
3
1

209.58
13
1

Profit (loss) before taxes

Income taxes(d)

($170)
(58)

($162)
(55)

($155)
(53)

($163)
(56)

($173)
(59)

Net Profit

($112)

($107)

($102)

($108)

($114)

Gross profit
Operating expenses(b)
Interest expense
Interest income(c)

(a)Assumed cost of goods sold equal to 70% sales.

(b)Assumed to be same for each month throughout the year.
(c)Toy World expected to earn a 4% annualized rate of return on average monthly cash balances.

(d)Negative figures are tax credits from operating losses, and reduced accrued taxes shown on balance

May

June

July

Aug.

Sept.

Oct.

Nov.

Dec.

$200
280
2,843

$200
280
3,294

$200
300
3,733

$200
1,780
3,220

$200
3,460
2,565

$200
3,980
1,714

$200
4,425
769

$200
3,400
586

$3,323

$3,774

$4,233

$5,200

$6,225

$5,894

$5,394

$4,186

1,176

1,176

1,176

1,176

1,176

1,176

1,176

1,176

$4,499

$4,950

$5,409

$6,376

$7,401

$7,070

$6,570

$5,362

$250
2,000
6

$250
1,930
200

$250
616
224

$250
1,248
(227)

$250
1,929
(322)

$250
2,000
(381)

$250
2,000
(269)

$250
2,000
(168)

50

50

50

50

50

50

50

50

$1,322
400

$1,907
375

$2,132
375
1,836
3,002

$2,306
375
996
3,340

$1,140
350

2,635

$2,031
375
1,186
2,737

$2,430
375

2,752

$1,919
375
555
2,520

3,717

3,831

$4,474

$4,917

$5,368

$6,328

$7,345

$7,018

$6,522

$5,321

($25)
($33)
($41)
($48)
xcess cash in months when company is out of debt.

($56)

o material purchases of $3,000,000 for 1994 as against sales of $10 million.

l, purchases will follow seasonal production

($53)

($48)

($41)

pril 15, June 15, September 15, and December 15, 1994, payments of 25%
ility for 1994, the company has the option of using the prior year's tax liability
n 1995. Alternatively, the company could estimate its 1994 tax liability directly.
nd to pay $35,000 in April, June, September, and December.

n, 1994 (thousands of dollars)

June

July

Aug.

Sept.

Oct.

Nov.

Dec.

Total

$140
91

$160
104

$1,620
1,055

$1,840
1,198

$2,140
1,393

$2,285
1,488

$1,115
726

$10,000
6,510

$49

$56

$565

$642

$747

$797

$389

$3,490

209.58
17
1

209.58
22
1

209.58
27
1

209.58
32
1

209.58
25
1

209.58
17
1

209.58
7
1

2,515
174
11

($178)
(60)

($175)
(60)

$330
112

$401
136

$512
174

$571
194

$173
59

$812
276

($117)

($116)

$218

$265

$338

$377

$114

$536

rage monthly cash balances.

d accrued taxes shown on balance sheet. The federal tax rate on all earnings was 34%.