Case Assignment

Forecast Assumptions Mr. Joyner feels that the company will continue to grow in the foreseeable future. In order to produce projected statements for 1991, he has provided some support showing that you should use the following assumptions:

1. Net sales will increase by 11% in 1991 from the 1990 levels. Cost of sales and general & administrative expenses will account for the same percentage of sales as in 1990. Salaries and wages and officers’ salaries are expected to increase by 3% from 1990. The tax rate is estimated at 30%. All other expenses, interest expense and other income will continue to grow proportionately to the first four months for the remaining eight months of the year. 2. Cash will represent the same percent of sales as at the end of 1990. 3. The Accounts Receivable (Days) ratio will remain the same as in 1990. 4. The Inventory Turnover vs. COGS (x) ratio will remain the same as in 1990. 5. For net fixed assets use the formula: Beginning Net Fixed Assets – Sales of Fixed Assets + Purchases of Fixed Assets – Depreciation Expense for the Year = Ending Net Fixed Assets There are no sales/purchases of fixed assets in the remaining months of 1991. 6. The rest of the assets will maintain the same relationship with sales as in 1990. 7. In order to take advantage of available discounts, the Accounts Payable vs. COGS (Days) ratio is estimated to be at 15 days in 1991. 8. Accrued expenses will maintain the same relationship with sales as in 1990. 9. Other current liabilities will remain the same as at 4/30/91. 10. The lines long-term debt and current maturities of long term debt should be used for the “notes payable to banks and others” liability. Here, the forecasted amounts remain unchanged from 4/30/91. 11. All the equity accounts with the exception of retained earnings will remain unchanged from 4/30/91. 12. The line “Notes payable – banks” in the Excel file should be used to balance the accounting equation. In other words, leave the amount owed under this line as the last item to forecast; once you figure out the forecasted income statement and all other accounts in the balance sheet, you will most likely have total assets exceeding total liabilities and equity (TA>TL+TE) at year end. The difference will be the amount that you need to borrow if you do not make any other adjustments on the asset or equity sides.