Assume XYZ has the following previous years Income Statement and Balance sheet and that management would want to forecast (project) next years financial statements based on the previous years financial data using percentage of sales model to forecasting.

Management projects 5% increase in sales

Management also wants to maintain dividend payout at 50%

Finally management intends to borrow 20m at 8% to maintain the companys capital structure in the ensuing year. Corporate tax remains fixed at 35%

Draft a forecast income statement and balance sheet for XYZ and determine its external funding requirement for the ensuing year

Pro Forma Income Statement

XYZ Company Income Statement (in millions)
	Year 0		One Year Ahead
Sales revenues	1,000.0		1,050.0	Growth at 5%
Cost of goods sold	600.0		630.0	60% of revenues
Gross profit	400.0		420.0	Revenues less COGS
SG&A	100.0		105.0	10% of revenues
Operating income	300.0		315.0	Gross profit less operating exp.
Interest expense	32.0		33.6	8% of long-term debt
Earnings before taxes	268.0		281.4	Operating income less interest exp.
Taxes	93.8		98.5	35% of earnings before taxes
Net income	174.2		182.9	Earnings before taxes less taxes
Dividends	87.1		91.5	Dividend payout ratio of 50%

Pro Forma Balance Sheet

XYZ Company Balance Sheet, End of Year (in millions)
	Year 0		One Year Ahead
Current assets	600.0		630.0	60% of revenues
Net plant and equipment	1,000.0		1,050.0	100% of revenues
Total assets	1,600.0		1,680.0
Current liabilities	250.0		262.5	25% of revenues
Long-term debt	400.0		420.0	Debt increased by 20 million to maintain the same capital structure
Common stock and paid-in capital	25.0		25.0	Assume no change
Treasury stock			(44.0)	Repurchased shares
Retained earnings	925.0		1,016.5	Retained earnings in Year 0, plus net income, less dividends
Total liabilities and equity	1,600.0		1,680.0