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Chapter 4

Financial Planning and Forecasting


Financial Statements
Case Study
Professor Dr. Hussein Seoudy
1

Taylor technologies Inc.s 2012 financial statements are


shown below:
Taylor Technologies
Income Statement for
December 31,2012
Sales
Operating Costs
Earnings before interest and taxes
Interest
Earnings before taxes
Taxes (40%)
Net Income
Dividends (60%)
Addition to retained earnings
2

1,800,000
1,639,860
160,140
9,140
151,000
60,400
90,600
54,360
36,240
2

Taylor Technologies
Balance Sheet as of
December 31,2012
Cash

90,000

Receivables

180,000 Accruals

90,000

Inventories

360,000 Notes Payable

78,000

Total Current
Liabilities

348,000

Common Stock

900,000

Retained Earnings

102,000

Total Current Assets


Net Fixed Assets

Total Assets

630,000

Accounts Payable

180,000

720,000

1,350,000

Total Liabilities and 1,350,000


Equity
3

Suppose 2013 sales are projected to increase by 10

percent over 2012 sales. Determine the additional


funds needed. Assume that the company was
operating at full capacity in 2013, that it cannot
sell off any of its fixed assets, and that any
required financing will be borrowed as notes
payable at 10 percent interest rate. Also, assume
that assets, spontaneous liabilities, and operating
costs are expected to increase by the same
percentage as sales.
Use the forecasted financial statement method to
develop a pro-forma balance sheet and income
statement for December 31, 2013..

Use the pro-forma income statement to


determine the additional funds needed.

Taylor Technology Inc.


Pro Forma Income Statement
December 31, 2013

2012

Sales
Operating costs
EBIT
Interest
EBT
Taxes(40%)
Net income
Dividends(60%)
R. Earning (40%)

$1,800,000
1,639,860
$ 160,140
10,140
$ 150,000
60,000
$ 90,000
$ 54,000
$ 36,000

Forecast
Basisa

1.10

2012
Forecast

$1,980,000
1,803,846
$ 176,154
10,140
$ 166,014
66,406
$ 99,608
$ 59,765
$ 39,843

Financing
Feed backs

+ 6,815

2012 2nd
Forecast

$1,980,000
1,803,847
$ 176,154
16,955
$ 159,199
63,680
$ 95,519
$ 57,312
$ 38,207

Taylor Technology Inc.


Pro Forma Balance Sheet
December 31, 2013
2012
Cash
Receivables
Inventory
Total current assets
Fixed assets
Total assets

90,000
180,000
360,000
$ 630,000
720,000
$1,350,000

Accts. payable
Notes payable
Accruals
Total Current liabilities
Common stock
Ret. Earnings
Total liabilities & equity

$ 180,000
78,000
90,000
$ 348,000
900,000
102,000
$1,350,000

Forecast
Basis
1.1

39,843

2012
Forecast
$

99,000
198,000
396.000
$ 693,000
792,000
$1,485,000

$ 198,000
78,000
99,000
$ 375,000
900,000
141,843
$1,416,843

198,000
146,157
99,000
$ 443,157
900,000
140,000
$1,483,364

AFN = $

2012 2nd
Forecast

Financing
Feed backs

68,157

99,000
198,000
396,000
$ 693,000
792,000
$1,485,000

$+ 68,157

+ 38,207

1,636
6

Taylor Technology Inc.


Pro Forma Income Statement
December 31, 2013

2012

Sales
Operating costs
EBIT
Interest
EBT
Taxes(40%)
Net income
Dividends(60%)
R. Earning (40%)

$1,800,000
1,639,860
$ 160,140
10,140
$ 150,000
60,000
$ 90,000
$ 54,000
$ 36,000

Forecast
Basis

1.10

2012
Forecast

$1,980,000
1,803,846
$ 176,154
10,140
$ 166,014
66,406
$ 99,608
$ 59,765
$ 39,843

Financing
Feed backs

+ 6,815

2012 2nd
Forecast

$1,980,000
1,803,847
$ 176,154
16,955
$ 159,199
63,680
$ 95,519
$ 57,312
$ 38,207

7
7

Taylor Technology Inc.


Pro Forma Income Statement
December 31, 2013

2012

Sales
Operating costs
EBIT
Interest
EBT
Taxes(40%)
Net income
Dividends(60%)
R. Earning (40%)

$1,800,000
1,639,860
$ 160,140
10,140
$ 150,000
60,000
$ 90,000
$ 54,000
$ 36,000

Forecast
Basis

1.10

1ST Pass
2013

$1,980,000
1,803,846
$ 176,154
10,140
$ 166,014
66,406
$ 99,608
$ 59,765
$ 39,843

Financing
Feed backs

+ 6,815

2012 2nd
Forecast

$1,980,000
1,803,847
$ 176,154
16,955
$ 159,199
63,680
$ 95,519
$ 57,312
$ 38,207

Taylor Technology Inc.


Pro Forma Balance Sheet
December 31, 2013
2012
Cash
Receivables
Inventory
Total current assets
Fixed assets
Total assets

90,000
180,000
360,000
$ 630,000
720,000
$1,350,000

Accts. payable
Notes payable
Accruals
Total Current liabilities
Common stock
Ret. Earnings
Total liabilities & equity

$ 180,000
78,000
90,000
$ 348,000
900,000
102,000
$1,350,000

Forecast
Basis
1.10

39,843

2012
Forecast
$

99,000
198,000
396.000
$ 693,000
792,000
$1,485,000

$ 198,000
78,000
99,000
$ 375,000
900,000
141,843
$1,416,843

198,000
146,157
99,000
$ 443,157
900,000
140,000
$1,483,364

AFN = $

2012 2nd
Forecast

Financing
Feed backs

68,157

99,000
198,000
396,000
$ 693,000
792,000
$1,485,000

$+ 68,157

+ 38,207

1,636
9

Taylor Technology Inc.


Pro Forma Balance Sheet
December 31, 2013
2012
Cash
Receivables
Inventory
Total current assets
Fixed assets
Total assets

Accts. payable
Notes payable
Accruals
Total Current liabilities
Common stock
Ret. Earnings
Total liabilities & equity

$ 180,000
78,000

10

90,000
180,000
360,000
$ 630,000
720,000
$1,350,000

90,000
$ 348,000
900,000
102,000
$1,350,000

1ST Pass
2013

Forecast
Basis
1.10

39,843

2012 2nd
Forecast

Financing
Feed backs

99,000
198,000
396.000
$ 693,000
792,000
$1,485,000

$ 198,000
78,000
99,000
$ 375,000
900,000
141,843
$1,416,843

198,000
146,157
99,000
$ 443,157
900,000
140,000
$1,483,364

AFN = $

68,157

99,000
198,000
396,000
$ 693,000
792,000
$1,485,000

$+ 68,157

+ 38,207

1,636
10

Taylor Technology Inc.


Pro Forma Income Statement
December 31, 2013

2012

Sales
Operating costs
EBIT
Interest
EBT
Taxes(40%)
Net income
Dividends(60%)
R. Earning (40%)

11

$1,800,000
1,639,860
$ 160,140
10,140
$ 150,000
60,000
$ 90,000
$ 54,000
$ 36,000

Forecast
Basis

1.10

1ST Pass
2013

$1,980,000
1,803,846
$ 176,154
10,140
$ 166,014
66,406
$ 99,608
$ 59,765
$ 39,843

Financing
Feed backs

+ 6,815

2012 2nd
Forecast

$1,980,000
1,803,847
$ 176,154
16,955
$ 159,199
63,680
$ 95,519
$ 57,312
$ 38,207

11

Taylor Technology Inc.


Pro Forma Income Statement
December 31, 2013

2012

Sales
Operating costs
EBIT
Interest
EBT
Taxes(40%)
Net income
Dividends(60%)
R. Earning (40%)

$1,800,000
1,639,860
$ 160,140
10,140
$ 150,000
60,000
$ 90,000
$ 54,000
$ 36,000

Forecast
Basis

1.10

1ST Pass
2013

$1,980,000
1,803,846
$ 176,154
10,140
$ 166,014
66,406
$ 99,608
$ 59,765
$ 39,843

Financing
Feed backs

+ 6,815

2nd Pass
2013

$1,980,000
1,803,847
$ 176,154
16,955
$ 159,199
63,680
$ 95,519
$ 57,312
$ 38,207

12
12

Taylor Technology Inc.


Pro Forma Balance Sheet
December 31, 2013
2012
Cash
Receivables
Inventory
Total current assets
Fixed assets
Total assets

Accts. payable
Notes payable
Accruals
Total Current liabilities
Common stock
Ret. Earnings
Total liabilities & equity

$ 180,000
78,000

13

90,000
180,000
360,000
$ 630,000
720,000
$1,350,000

90,000
$ 348,000
900,000
102,000
$1,350,000

1ST Pass
2013

Forecast
Basis
1.10

39,843

2012 2nd
Forecast

Financing
Feed backs

99,000
198,000
396.000
$ 693,000
792,000
$1,485,000

$ 198,000
78,000
99,000
$ 375,000
900,000
141,843
$1,416,843

198,000
146,157
99,000
$ 443,157
900,000
140,000
$1,483,364

AFN = $

68,157

99,000
198,000
396,000
$ 693,000
792,000
$1,485,000

$+ 68,157

+ 38,207

1,636
13

Taylor Technology Inc.


Pro Forma Balance Sheet
December 31, 2013
2012
Cash
Receivables
Inventory
Total current assets
Fixed assets
Total assets

Accts. payable
Notes payable
Accruals
Total Current liabilities
Common stock
Ret. Earnings
Total liabilities & equity

$ 180,000
78,000

14

90,000
180,000
360,000
$ 630,000
720,000
$1,350,000

90,000
$ 348,000
900,000
102,000
$1,350,000

1ST Pass
2013

Forecast
Basis
1.10

39,843

Financing
Feed backs

2nd Pass
2013

99,000
198,000
396.000
$ 693,000
792,000
$1,485,000

$ 198,000
78,000
99,000
$ 375,000
900,000
141,843
$1,416,843

198,000
146,157
99,000
$ 443,157
900,000
140,000
$1,483,364

AFN = $

68,157

99,000
198,000
396,000
$ 693,000
792,000
$1,485,000

$+ 68,157

+ 38,207

1,636
14

The End
Chapter 4
Financial Planning and Forecasting
Financial Statements
Case Study
15

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