1. Prepare proforma forecasts of financial statements of Simple, Inc for two years, 2021 and 2022. What are the companys forecasted Net Earnings (profit/loss after tax) and additional financing requirements (overdrafts) in 2021 and in 2022?

Assumptions: in 2021 and 2022, sales will grow at 15% per year, CGS will equal 42% of sales, SGA will equal 53% of sales, DRO will be maintained at 35 days, DPO will be at 25 days, while DSI will be reduced by 10 days in each of the two years. The ratio of fixed assets relative to sales will increase by 3% in each of the two years. Minimum cash balance will be maintained at 5% of total assets. Assume interest rate of 6% per year, and effective tax rate of 29%. All other accounts will be maintained at ratios to sales similar to those during 2020.

Simple, Inc. Financial Statements (in $ millions) Fiscal Year Ended Dec. 31 2017 ($) 2018 ($) TO FORECAST TO FORECAST 2020 2021 2022 Assumptions estimated 2019 ($) (% sales) (% sales) (% sales Past data Income Statement Turnover Cost of sales Gross profit 303.7 127.7 176.0 100.0 42.0 58.0 330.1 130.9 199.2 100.0 39.7 60.3 374.1 149.0 225.1 100.0 13.33% 39.8% of sales 60.2 mechanical 15% 39.80% 430.2 171.2 259.0 1 Operating expenses - excluding exceptional c - exceptional costs Restructuring costs Net interest expense Profit before tax Tax expense Profit/(loss) after tax 151.4 4.5 16.6 0.1 3.4 8.0 (4.6) 49.9 1.5 5.5 0.0 1.1 2.6 -1.5 166.2 0.0 2.7 1.5 28.8 10.4 18.4 50.3 0.0 0.8 0.5 8.7 3.2 5.6 195.7 11.2 1.0 4.4 12.8 3.5 9.3 52.3% of sales 3.0 unusual 0.3 unusual 1.2 interest rate 3.4 mechanical 0.9=pre-tax*tax ra 2.5 mechanical 50% 0% 0% 9% 216.4 0 0 5.2 37.4 10.2 27.2 27.34% Ordinary dividends Profit/(loss) retained 10.9 (15.5) 3.6 -5.1 10.9 7.5 3.3 2.3 10.9 (1.6) 2.9 constant -0.4 mechanical 10.9 16.3 8.69% sales growth interest rate, approximate tax rate 13.33% 9.13% 27.34% Fiscal Year Ended Dec. 31 2017 ($) 2018 ($) Balance Sheet 2019 ($) (% sales) (% sales) (% sales) 34.0 11.2 19.2 5.8 13.7 27.8 9.2 29.6 Assets Cash Excess cash (PLUG) Accounts receivable Inventories Other current assets Net fixed assets Other assets Total assets 38.6 12.5 87.8 0.0 200.7 9.2 12.7 4.1 28.9 0.0 66.1 30.3 44.7 15.6 104.7 6.0 220.5 13.5 4.7 31.7 1.8 66.8 30.3 51.3 17.5 110.6 6.7 230.1 3.7 min level PLUG 8.1 DRO 13.7 DSI 4.7% of sales 29.6% of sales 1.8% of sales 61.5 mechanical 125.7 4.68% 29.56% 1.79% 13.7 0 34.8 59.0 20.1 127.2 7.7 262.5 Od Liabilities and equity Accounts payable Taxes payable Accruals Overdrafts (PLUG) Other current liabilities Long-term liabilities Other liabilities Shareholders' equity Total liabs. and equity 13.0 11.3 10.8 0.0 21.6 28.0 1.7 114.3 200.7 4.3 3.7 3.6 0.0 7.1 9.2 0.6 37.6 66.1 20.5 11.7 15.6 0.3 13.3 36.7 1.0 121.4 220.5 6.2 3.5 4.7 0.1 4.0 11.1 0.3 36.8 66.8 10.7 7.1 11.5 0.7 16.9 61.2 0.4 121.6 230.1 2.9DPO 26.2 1.9 % of sales 1.90% 3.1% of sales 3.07% 0.2 PLUG 4.5 % of sales 4.52% 16.4 DEBT constant 0.1% of sales 0.11% 32.5 =last year's + IS ret earn 61.5 mechanical 12.3 8.2 13.2 9.1 19.4 61.9 0.5 137.9 262.5 difference 9.1 1. Net earnings 2. Overdrafts PLUG OVERDRAFTS base case 27.0949 9.3 27.2 9.1 TA>TLE TATLE TA