The Owl Corporation is planning for 20X2. The firm expects to have the following financial result in 20X1 ($000).
INCOME STATEMENT
$ %
Revenue $37,483 100.0
COGS 14,807 39.5
Gross margin $22,676 60.5
Expense 17,721 47.3
EBIT $4,955 13.2
Interest $1,380 3.7
EBT $3,575 9.5
Income tax 1,430 3.8
EAT $2,145 5.7
BALANCE SHEET
ASSETS LIABILITIES & EQUITY
CASH $1,571 ACCTS. PAY. $1,388
ACCTS. REC 6,247 ACCRUALS 985
INVENTORY 2,468 CURR. LIAB. $2,373
CURR. ASSETS $10,286
FIXED ASSETS CAPITAL
GROSS $25,608 DEBT $12,390
ACCUM. DEP. (14,936) EQUITY 6,195
NET $10,672 $18,585
TOTAL ASSETS $20,958 TOTAL L & E $20,958
Management has made the following planning assumptions:
Income Statement
• Revenue will grow by 10%
• The cost ratio will improve to 37% of revenues.
• Expenses will be held to 44% of revenues.
Balance Sheet
• The year end cash balance will be $1.5 million.
• The ACP will improve to 40 days from the current 60.
• Inventory turnover will improve to 7X from 6X.
• Trade payables will continue to be paid in 45 days.
• New capital spending will be $5 million.
• Newly purchased assets will be depreciated over 10 years using the straight-line method taking a full year’s depreciation in the first year.
• The company’s payroll will be $13.7 million at the end of 20X2.
• No dividends or new stock sales are planned.
The following facts are also available:
• The firm pays 10% interest on all of its debt.
• The combined state and federal income tax rate is a flat 40%.
• The only significant payables come from inventory purchases, and product cost is 75% purchased materials.
• Existing assets will be depreciated by $1,727,000 next year.
• The only significant accrual is payroll. The last day of 20X2 will be one week after a payday.
Forecast Owl’s income statement and balance sheet for 20X2. Round all calculations to the nearest $1,000 and use a 360-day year.
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