The Manning Company has financial statements_The firm is expecting a 20 percent increase in sales_Answer

 

The Manning Company has financial statements_The firm is expecting a 20 percent increase in sales_Answer

The Manning Company has financial statements as shown below, which are representative of the company’s historical average.
The firm is expecting a 20 percent increase in sales next year, and management is concerned about the company’s need for external funds. The increase in sales is expected to be carried out without any expansion of fixed assets, but rather through more efficient asset utilization in the existing store. Among liabilities, only current liabilities vary directly with sales.
Using the percent-of-sales method, determine whether the company has external financing needs, or a surplus of funds. (Hint: A profit margin and payout ratio must be found from the income statement.)
Income Statement
Sales $200,000
Expenses 158,000
Earnings before interest and taxes $ 42,000
Interest 7,000
Earnings before taxes $ 35,000
Taxes 15,000
Earnings after taxes $ 20,000
Dividends $ 6,000

Balance Sheet
Assets Liabilities and Stockholders’ Equity
Cash $ 5,000 Accounts payable $ 25,000
Accounts receivable 40,000 Accrued wages 1,000
Inventory 75,000 Accrued taxes 2,000
Current assets $120,000 Current liabilities $ 28,000
Fixed assets 80,000 Notes payable 7,000
Long-term debt 15,000
Common stock 120,000
Retained earnings 30,000
Total assets $200,000 Total liabilities and
stockholders’ equity $200,000