Reference no: EM1314655

Projected income statement, Balance sheet and cash flow statement.

The Haverly Company expects to finish the current year with the following financial results, and is developing its annual plan for next year.

Haverly Company Income Statement 200X
	$	%
Net Sales	73,280	100
COGS	31,743	43
Gross Margin	42,077	57
Expenses
Marketing	17,422	23.6
Engineering	7,087	9.6
Finance and Administration	7,603	10.3
Total Expenses	32,112	43.5
EBIT	9,965	13.5
Interest	2,805	3.8
EBT	7,160	9.7
Income Tax	3,007	4.1
NI	4,153	5.6

 

Haverly Company Balance Sheet 200X
Assets	Liabilities and Equity
Cash	8,940	Accounts Payable	1,984
Accounts Receivable	12,303	Accruals	860
Inventory	7,054	Current Liabilities	2,844
Current Assets	28,297
		Long-Term Debt	22,630
Capital Assets		Equity
Gross	65,233	Common Shares	18,500
Less Accumulated Amortization	(23987)	Retained Earnings	25,559
Net	41,236	Total Equity	44,059
Total Assets	69,533	Total Liabilities and Equity	69,533

The following facts are available:

• Payables are almost entirely due to inventory purchases and can be estimated by using COGS, which is 43% of revenues.
• Currently owned assets will amortize an additional $1,840,000 next year
• There are two balance sheet accruals
  • The first is for unpaid wages. The current payroll of $32 million is expected to grow by 12% next year. The closing date of the year will be six working days after a payday.
  • The second accrual is an estimate of the cost of purchased items that have arrived in inventory, but for which vendor invoices have not yet been received. This materials accrual is generally about 10% of the payables balance at year-end.
• The combined federal and provincial tax rate is 42%
• Interest on current and future borrowings will be at a rate of 7%

Planning Assumptions:
Income Statement Items

1.        Revenue will grow by 13% with no change in the product mix. Competitive pressure, however, is expected to force some reductions in pricing.

2.        The pressure on prices will result in a 1.5% increase in next year's cost ratio.

3.        Spending in the marketing department is considered excessive and will be held to 21% of revenue next year.

4.        Because of a major development project, expenses in the engineering department will increase by 20%.

5.        Finance and administration expenses will increase by 6%.

Assets and Liabilities:

1.        An enhanced cash management system will reduce cash balances 10%.

2.        The Average Accounts Receivable Collection Days will be reduced by 15 days. (Calculate the current value to arrive at the target.)

3.        The inventory turnover ratio (COGS/Inventory) will decrease by 0.5 times.

4.        Capital spending is expected to be $7 million. The average life of the assets acquired is 10 years. The firm uses straight line amortization.

5.        Bills are currently paid in 50 days. Plans are to shorten that to 40 days.

6.        A dividend totaling $1.5 million will be paid next year. No new shares will be sold.

Develop next year's financial plan for Haverly on the basis of these assumptions and last year's financial statements. Include a projected income statement, balance sheet, and statement of cash flows.