3 Assume no dramatic changes in the international business e

3. Assume no dramatic changes in the international business environment. Prepare your estimate of Toys “R” Us’s net sales for the 1995 fiscal year (which will end in February, 1996). Express your estimate as a reasonable range that you think will include the actual amount of net sales, not as a single dollar amount. In developing your estimate, you may use any of the computations in part 1, as well as any other information included in the annual report. Explain fully the reasoning behind your estimate.

Note: We are interested in your reasoning processes, not in the accuracy of your estimate. You are not to look up the actual net sales for fiscal 1995.

ANNUAL REPORT OF TOYS \"R\" US Intended for Uise after Chapter 8. In this appendix we present the 1995 annual report of Toys \"R\" Us, a publicly held corporation. This report was selected to illustrate many of the financial reporting concepts discussed in this textbook. But not all of the terminology and accounting policies appearing in this report are consistent with our text discussions. This illustrates some of the diversity that exists in financial reporting. TOSUs ANNUAL REPORT YEAR END ED JANUARY 28. 1 99s

Solution

WORKINGS: Fiscal Year ended Net Earnings SH. equity ROE=Net earnings/SH.Equity g=ROE*RR(100%) Total Assets Net Sales Total asset T.O.=Sales/Assets 1986 120 717 16.74% 16.74% 1226 1976 1.61 1987 152 901 16.87% 16.87% 1523 2445 1.61 1988 204 1135 17.97% 17.97% 2027 3137 1.55 1989 268 1424 18.82% 18.82% 2555 4000 1.57 1990 321 1705 18.83% 18.83% 3075 4788 1.56 1991 326 2046 15.93% 15.93% 3582 5510 1.54 1992 340 2426 14.01% 14.01% 4583 6124 1.34 1993 438 2889 15.16% 15.16% 5323 7169 1.35 1994 483 3148 15.34% 15.34% 6150 7946 1.29 1995 532 3429 15.51% 15.51% 6571 8746 1.33 Average= Sum/10 = 16.52% 7657 1.47 1...As seen from the last 3 year cash flow-financing activities, no dividends were paid---it has been assumed that the entire net earnings were retained & used for internal growth. Hence,assuming an average internal growth rate of 16.52%, (refer table for calculations) Sales for the Fiscal year 1995 ,over the previous year, can be predicted as 8746*1.1652= 10191 Millions 2...Efficiency ratio of asset turnover, that indicates the $ sales generated per $ of the assets put in use--sales can be forecasted for a particular level of assets (here, the internal growth rate has been used to predict the level of assets) Using the10 Year -average total asset turnover of 1.47 & the total asset forecast of 6571 *1.1652= 7657, for 1995-\'96 Sales figure for the Fiscal year 1995 will be Sales/7657=1.47 So, sales=7657*1.47= 11256 So, the sales range may be $ 10191 to $ 11256