Ian Stoddart was reviewing his company’s 2013 year-end financial estimates, and he was not satisfied with the overall performance. He asked his management team to prepare their detailed operational plans for 2014 and provide their operating budgets to the controller so that he could consolidate the budgets and present, in the latter part of November, the company’s financial projections for 2014.

As he pointed out to his team, “The financial projections should be better than the year-end 2013 estimates. We have to achieve four basic financial objectives related to liquidity, solvency, and productivity, and our return on revenue (profitability) should be at least 4% and return on total assets more than 6%.

“The specific objectives for 2014 that I have in mind are as follows:

• Regarding liquidity, our current ratio should not be less than 1.5 times.

• For solvency, our debt-to-total-assets ratio should be maintained at no more that 50% and times-interest-earned should be more than 5.0 times.

• The productivity of our total assets should be 1.5 times, the average collection period for our trade receivables should be maintained at less than 45 days, and our inventory turnover should be more than 4 times;

• With respect to profitability, our return on revenue should be at least 4% and return on total assets over 6%.”

During the second week of November, the controller presented the projected 2014 financial statements to the management committee.

Should Ian Stoddart be satisfied with the 2014 financial projections?

Transcribed Image Text:

Proiected Staterment of Financial Position As at December 31, 2014 Non-current assets Equity 800,000 Property, plant, and equipmnt 800,000 Non-current liabilities Current assets Long-term borrowings 300,000 Inventories Trade receivables Cash 400,000 Current liabilities 300,000 Trade and other payables Short-term borrowings 250,000 170,000 420,000 720,000 $1,520,000 20,000 720,000 Total current assets Total current liabilities Total liabilities Total assets 1,520,000tal equity and liabilities Projected Statement of Income For the year ended December 31, 2014 Revenue Cost of sales Gross margin Other expenses Finance costs Total expenses Profit before taxes Income tax expense Profit for the year $2,000,000 (1,200,000) 800,000 (600,000) (625,000) 175,000 65 110,000