Homework SourseGiven the financial statements below for Dragonfly Enterpris
Given the financial statements below for Dragonfly Enterprises, what is the external financing need for a pro forma increase in sales of 13% if the firm is operating at 94% capacity? Enter your answer as the nearest whole (e.g., 123), but do not include the $ sign.
Dragonfly Enterprises
Income Statement ($ Million)
2011
Sales
370
Cost of Goods Sold
226
Selling, General, & Admin Exp.
62
Depreciation
20
Earnings Before Interest & Taxes
62
Interest Expense
12
Taxable Income
50
Taxes at 40%
20
Net Income
30
Dividends
9
Addition to Retained Earnings
21
Balance Sheets as of 12-31
Assets
2010
2011
Cash
10
10
Account Receivable
46
50
Inventory
43
45
Total Current Assets
99
105
Net Fixed Assets
166
195
Total Assets
265
300
Liabilities and Owners Equity
2010
2011
Accounts Payable
26
30
Notes Payable
0
0
Total Current Liabilities
26
30
Long-Term Debt
140
150
Common Stock
22
22
Retained Earnings
77
98
Total Liab. and Owners Equity
265
300
| Dragonfly Enterprises | ||
| Income Statement ($ Million) | 2011 | |
| Sales | 370 | |
| Cost of Goods Sold | 226 | |
| Selling, General, & Admin Exp. | 62 | |
| Depreciation | 20 | |
| Earnings Before Interest & Taxes | 62 | |
| Interest Expense | 12 | |
| Taxable Income | 50 | |
| Taxes at 40% | 20 | |
| Net Income | 30 | |
| Dividends | 9 | |
| Addition to Retained Earnings | 21 | |
| Balance Sheets as of 12-31 | ||
| Assets | 2010 | 2011 |
| Cash | 10 | 10 |
| Account Receivable | 46 | 50 |
| Inventory | 43 | 45 |
| Total Current Assets | 99 | 105 |
| Net Fixed Assets | 166 | 195 |
| Total Assets | 265 | 300 |
| Liabilities and Owners Equity | 2010 | 2011 |
| Accounts Payable | 26 | 30 |
| Notes Payable | 0 | 0 |
| Total Current Liabilities | 26 | 30 |
| Long-Term Debt | 140 | 150 |
| Common Stock | 22 | 22 |
| Retained Earnings | 77 | 98 |
| Total Liab. and Owners Equity | 265 | 300 |
Solution
External Financing Needed = Current Total Assets/ Current Sales* (Forecasted Sales – Current Sales) – Current Liabilities at time 0/ Current Sales* (Forecasted Sales – Current Sales) – Profit Margin* Retention Ratio* Forecasted Sales
Forecasted Sales = 370* (1.13) = 418
Sales @ Full Capacity = 370/ 0.94= 394
Current Sales = 370
Current Total Assets = 300
Current Liabilities = 30
Profit Margin = 30/ 370*100= 8.11%
Retention Ratio = 21/30*100=70%
EFN1 = 370/370* (394-370) – 30/370* (394-370) – 8.11%*70%*394
EFN1 = 24 – 1.95- 22.35 = (-) 0.3million
EFN2 = (370/370 + 300/394)* (418-394) – 30/370*(418-394) – 8.11%*70%*(418-394) = 42.30- 1.95- 1.35= 39
EFN = EFN 1 + EFN 2 = 39-0.3= 38.70
so in round figure EFN required for the next year $39million
