Current sales

change in sales

Net income
Addition to retained earnings = Ne

c)
Pro Forma Income Statement Pro Forma Balance Sheet
Sales (Projected) 360,000,000 Asset Liabilities
Net income 32,400,000 Current ass 432,000,000 Short-term debt 414,000,000
fixed asset 630,000,000 Long-term debt 105,000,000
(new) Addition to retained earnings = Net income(1 – d 1,062,000,000 519,000,000
 22,680,000 Equity
(new) accumulated 45,135,446 common stock 46,000,000
accumulated RE 45,135,446
91,135,446

ROE

a)
Profit margin
d
∆Sales
Spontaneous liabilities
EFN

b)
(new) Addition to retained earning
1,679,632
(new) accumulated RE
12,079,633

EFN

c)
ROE
b
sustainable growth rat

(new) Addition to retained earning

2,584,050
(new) accumulated RE
12,984,050
EFN

sales
Receivable turnover = sales / acc re

current A
Net income
ROE=Net income / Total Equity
Total Equity
 Long-term debt ratio = longterm d
Long term debt
Total Liabilities
Total A= Total L + Total E
Fixed Assets

EBIT
Interest expense
EBT
EBITDA = EBIT + depreciation and amortization tax
20,126 Net income
Cash coverage ratio = EBITDA / Interest
8
 ROE = Profit margin x Total assets turnover x Equity multiplier
14.74%
Equity multiplier = assets / total equity = 1 + Debt–equity ratio 1.7
ROE = ROA x Equity multiplier = ROA x (1 + Debt–equity ratio) 14%
ROE= Net income/ Total equity
=> Net income 119,952

ROE= Net income/Sales x Sales/Assets x Assets/ total Equity = Net income/Sales x Sales/Assets x Equity multiplier
15% = Net income/ 3,100 x 3,100/1,340 x (1+1.2)
$ 91.36

Step 1: Poject sales, costs and net income step 2: Project dividend Payment
Pro Forma Income Statement Dividend payout ratio = Cash dividends/Net income
Sales (Projected) 45,426 0.41
Costs (68% sales) 30,890 Projected dividend paid to shaerholders = Dividend pay out ratio x projected ne
Taxable income 14,536 3,944
Taxes (34%) 4,942 Step
EFN =3:(Assets/Sales)
Compute EFN× ∆Sales − (Spontaneous liabilities/Sales) × ∆Sales − PM
Net income 9,594 × Projected sales × (1 − d )
∆Sales 5226
(new)Profit margin = net income/sales Spontaneous liabil 39,000
21% => unchange d 0.41
(old) Profit margin 21% EFN $ 8,130

Sustainable growth rate = (ROE × b) / (1 – ROE × b) 12.91%

ROE 28.59%
b= plow back rate= retention ratio=1- dividend payout ratio
0.40

a) Balance Sheet
356,435,644 Asset Liabilities
3,564,356 Current asset 427,722,772 Short-term debt 409,900,990
fixed assets 623,762,376 Long-term debt 105,000,000
32,079,208 1,051,485,149 514,900,990
retained earnings = Net income(1 – d) Equity
22,455,446 common stock 46,000,000
accumulated RE 22,455,446
68,455,446
b)
Profit margin 9% Profit margin 9%
d 30% d 30%
∆Sales 3,564,356 ∆Sales 3,564,356
Spontaneous liabili 414,000,000 Spontaneous liabil 409,900,990
EFN = Total assets – Total liabilities and equity EFN (16,264,158)
451,864,554
 A B
10.0% 9.8%

current projected
sales 25,380,000 29,187,000
8.85% Net income 2,247,000 2,584,050.000
0.35
3,807,000.00
5,200,000
1,260,367.5

Pro Forma Balance Sheet

tion to retained earnings = Ne Asset Liabilities
Current assets 8,280,000 Short-term debt 5,980,000
fixed assets 20,240,000 Long-term debt 6,000,000
28,520,000 11,980,000
Equity
common stock 3,200,000
accumulated RE 12,079,633
15,279,633
1,260,367.5

Pro Forma Balance Sheet

0.1652205882 Asset Liabilities
0.65 Current assets 8,280,000 Short-term debt 5,980,000
12% fixed assets 20,240,000 Long-term debt 6,000,000
28,520,000 11,980,000
Equity
tion to retained earnings = Net income(1 – d) common stock 3,200,000
accumulated RE 12,984,050
16,184,050

355,950

3,528,090
turnover = sales / acc receivable Day's sales in receivable = 365 / receivable turnover
23 16

$ 1,536.00
$ 546.46
ncome / Total Equity
$ 3,104.89
debt ratio = longterm debt / (long term debt + total equity)
$ 1,268.19
$ 2,548.19
tal L + Total E
$ 4,117.08

16,955.76
2,380
14,575.76
4,955.76
9,620
 Mini case
ROE= Net income/ Total equity
dividend payout ratio= dividend/Net income
b= plow back rate= retention ratio=1- dividend payout rati
Sustainable growth rate = (ROE × b) / (1 – ROE × b)

EAST COAST YACHTS

sets x Equity multiplier Pro Forma Income Statement
Original
Sales $ 210,900,000
Cost of goods sold 148,600,000
Other expenses 25,192,000
Depreciation 6,879,000
Earnings before interest and taxes (EBIT) $ 30,229,000
vidend pay out ratio x projected net income Interest 3,791,000
Taxable income $ 26,438,000
liabilities/Sales) × ∆Sales − PM Taxes (40%) 10,575,200
Net income $ 15,862,800

Dividends
Add to RE $ 4,759,301
$ 11,103,499

EAST C
Pro Form
Assets
Current assets Original
Cash 3,285,600
Accounts receivable 5,910,800
Inventory 6,627,300
Total 15,823,700
Fixed assets
Net plant and equipment 101,481,200
Total assets 117,304,900

External funds needed (EFN) = Total Assets - Total Liabilities & Equity
$ 7,310,276
 26.62%
30%
0.69997
22.90%

CHTS
atement
At 22.9% Growth rate
$ 259,201,872
182,633,467
30,961,657
6,879,000
$ 38,727,748
3,791,000
$ 34,936,748
13,974,699
$ 20,962,049

$ 6,289,224
$ 14,672,825

EAST COAST YACHTS

Pro Forma Balance Sheet
Liabilities & Equity
At 22.9% Growth rate Current liabilities Original At 22.9% Growth rate
$ 4,038,092 Accounts payable 6,977,700 8,575,784
7,264,535 Notes payable 14,342,600 17,627,448
8,145,133 Total 21,320,300 $ 26,203,232
$ 19,447,760
Long-term debt 36,400,000 $ 36,400,000
$ 124,723,172
$ 144,170,933 Shareholders’ equity
Common stock 5,580,000 $ 5,580,000
Retained earnings 54,004,600 68,677,425
Total equity 59,584,600 $ 74,257,425
Total liabilities and equity 117,304,900 $ 136,860,657
tal Liabilities & Equity
 Lower Quartile Median Upper Quartile
Current ratio 0.5 1.43 1.89
Quick ratio 0.21 0.38 0.62
Total asset turnover 0.68 0.85 1.38
Inventory turnover 6.85 9.15 16.13
Receivables turnover 6.27 11.81 21.45
Debt ratio 0.44 0.52 0.61
Debt–equity ratio 0.79 1.08 1.56
Equity multiplier 1.79 2.08 2.56
Interest coverage 5.18 8.06 9.83
Profit margin 4.05% 6.98% 9.87%
Return on assets 6.05% 10.53% 15.83%
Return on equity 9.93% 16.54% 28.14%
 Formula Ratio O
Current Assets/Current Liabilities 0.742 Ability to satisfy essential operational commitments with encashab
(Current assets - Inventory) / Current Liabilities 0.431 Its ability to satisfy essential operational commitments with more
Sales / Total Assets 1.798 Best asset utilisation as measured by dollar sales generated per do
COGs / Average Inventory 20.119 The amount of inventory that is turned into sales in a given year is
Sales / Acc. Receivables 35.680 The amount of receivables that is collected in a given year is also h
Total Liabilities / Total Assets 0.485 The amount of debt used to finance the assets is the highest in the
Total Liabilities / Total Equity 0.843 Confirms the debt ratio observations
Total Assets / Total Equity 1.942 Confirms the debt ratio and debt-equity ratio observations
EBIT / Interest expense 10.216 Almost similar to average firms in meeting the interest expenses, w
Net income / sales 8.09% Dollar net income per dollar of sales is above average and closer to
Net income / Total Assets 14.54% Dollar net income per dollar of average assets used is higher than a
Net Income / Total Equity 28.23% The dollar net income earned per dollar of average quity funds use

1.982607
 Obserbvations
l commitments with encashable assets that is less than that of averaage industry firms
onal commitments with more easily convertible assets is thus inferior to those of average industry firms.
dollar sales generated per dollar of assets, far above peers in the industry.
ed into sales in a given year is also higher than average, showing excellent inventory management.
lected in a given year is also higher than average, showing excellent receivables management.
the assets is the highest in the industry and is closer to the median value.

uity ratio observations

eeting the interest expenses, with the income just before changing the same.
is above average and closer to that of upper-tier enterprises.
ge assets used is higher than average and closer to that of upper-tier enterprises.
llar of average quity funds used outperforms the industry average.