Compute the firm current and total debt ratios

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Question - A company presented this balance sheet at the end of 2021:

Cash $1,200 A/P $1,060

Accounts Rec. 2,450 Accruals 2,000

Inventory 4,150

Fixed assets 4,600 S-T (3-month) Loans 1,897

Common Stock 1,677

Ret. Earnings 5,766

Total assets $12,400 Total claims $12,400

The company's after-tax profit margin is 12.5% and the company recorded a 56% payout ratio. Sales last year were $18,440 and its assets were utilized to full capacity. Assume that all the ratios remain the same going forward and the company want to utilize the AFN equation to estimate external funds needed. If the company does raise funding, it will do so through short-term loans. Compute the AFN using the AFN equation and assume that sales will rise by 44%. Also compute the firm's current and total debt ratios after any external capital is raised. (Ignore financing feedback effects.)

Reference no: EM133145538

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