can you answer all of them for me
Growing Pains "We are growing too fast," said Geoff. "I know I shouldn't complain, but we better have the capacity to fill the orders or we'll be hurting ourselves." Dawn and Geoff De Tolve started their oatmeal snacks company in 2008, upon the suggestion of their close friends who simply loved the way their oatmeal tasted. Geoff, a former college gymnastics coach, insists that he never "intended to start a business," but the thought of being able to support his college team played a significant role in motivating him to go for it. After considerable help from local retailers and a sponsorship by a major bread company, their firm, Healthy Grains Inc., was established in 2008 and reached sales of over $4 million by 2015. Given the current trend of eating healthy snacks and keeping fit, Geoff was confident that sales would increase significantly over the next few years. The industry growth forecast had been estimated at 30% per year, and Geoff was confident that his firm would be able to at least match if not beat that rate of sales growth. "We must plan for the future," said Dawn. I think we've been playing it by ear for too long." Geoff immediately called their treasurer, Matt Evans. "Matt, I need to know how much additional funding we are going to need for the next year," said Geoff. The growth rate of revenues should be be- tween 25% and 40%. I would really appreciate if you can have the forecast on my desk by early next week." Matt knew that his fishing plans for the weekend had better be put asideit was going to be a long and busy weekend for him. He immediately asked the accounting department to give him the last three years' financial 18 Case 4 Growing Pains statements (see Tables 1 and 2) and got right to work. Table 1 Healthy Grains, Income Statement For the Year Ended Dec. 31st 2015 2015 2014 2013 Sales Cost of Goods Sold Gross Profit Selling and G & A Expenses Fixed Expenses Depreciation Expense Earnings Before Interest and Taxes Interest Expense Earnings Before Taxes Taxes @ 40% Net Income 4,700,000 .8253,877,500 822,500 275,000 90,000 25,000 3,760,000 3,045,600 714,400 250,000 90,000 25,000 3,000,000 2,400,000 600,000 215,000 90,000 25,000 432,500 349,400 66,000 66,000 366,500 283,400 146600 113360 219,900 170,040 131940 60% 102024 270,000 66,000 204,000 81600 122,400 Retained Earnings 73440 Case 4 Growing Pains 19 Table 2 Healthy Grains Inc. Balance Sheet For the Year Ended Dec. 31st 2015 2015 2014 2013 60,000 250,416 Assets go Cash and Cash Equivalents Accounts Receivable Inventory Total Current Assets Prin iboraldis Plant & Equipment Accumulated Depreciation Net Plant & Equipment Total Assets tro 97,376 175.000 390,000 662,376 560,000 511,500 821,916 560,000 175,000 385,000 1,206,916 48,000 150.000 335,000 533,000 560.000 125,000 435,000 968,000 150,000 410,000 1,072,376 de 135,000 128,000 275,000 250,000 43,952 Liabilities and Owner's Equity Accounts Payable Notes Payable Other Current Liabilities Total Current Liabilities Long-Term Debt Total Liabilities Owner's Capital Retained Earnings Total Liabilities and Owner's Equity 453,952 275,000 728,952 155,560 322,404 1,206,916 151,352 275,000 50,000 476,352 250,000 726,352 155,560 190,464 1,072,376 46,000 424,000 300,000 724,000 155,560 88,440 968,000 Questions: a 1. This is the first time Matt and Geoff will be conducting a fi should proceed? Which approaches or models can they use? nancial forecast for Healthy Grains Inc. How do you think they What are the assumptions necessary for utilizing each model? 2. If Healthy Grains Inc. is operating its fixed assets at full ca- pacity, what growth rate can it support without the need for 3. Healthy Grains Inc. has a flexible credit line with the Uptown Bank. If Geoff decides to keep the debt-equity ratio constant, up to what rate of growth in revenue can the firm support? What assumptions are necessary when calculating this rate of growth? Are these assumptions realistic in the case of Healthy Grains Inc.? Explain. any additional external financing? 4. Initially, Matt assumes that the firm is operating at full ca- pacity. How much additional financing will it need to support revenue growth rates ranging from 25% to 40% per year? 5. After conducting an interview with the production manager, Matt realizes that Healthy Grains Inc. is operating its plant at 90% capacity. How much additional financing will it need to support growth rates ranging from 25% to 40%? 6. What actions can Geoff take in order to alleviate some of the need for external financing? Analyze the feasibility and impli- cations of each suggested action. 7. How critical is the financial condition of Healthy Grains Inc.? Is Dawn justified in being concerned about the need for finan- cial planning? Explain why. 8. Given that Geoff prefers not to deviate from the firm's 2015 debt-equity ratio, what will the firm's pro-forma income state ment and balance sheet look like under the scenario of 40% growth in revenue for 2016 (ignoring feedback effects)? Growing Pains "We are growing too fast," said Geoff. "I know I shouldn't complain, but we better have the capacity to fill the orders or we'll be hurting ourselves." Dawn and Geoff De Tolve started their oatmeal snacks company in 2008, upon the suggestion of their close friends who simply loved the way their oatmeal tasted. Geoff, a former college gymnastics coach, insists that he never "intended to start a business," but the thought of being able to support his college team played a significant role in motivating him to go for it. After considerable help from local retailers and a sponsorship by a major bread company, their firm, Healthy Grains Inc., was established in 2008 and reached sales of over $4 million by 2015. Given the current trend of eating healthy snacks and keeping fit, Geoff was confident that sales would increase significantly over the next few years. The industry growth forecast had been estimated at 30% per year, and Geoff was confident that his firm would be able to at least match if not beat that rate of sales growth. "We must plan for the future," said Dawn. I think we've been playing it by ear for too long." Geoff immediately called their treasurer, Matt Evans. "Matt, I need to know how much additional funding we are going to need for the next year," said Geoff. The growth rate of revenues should be be- tween 25% and 40%. I would really appreciate if you can have the forecast on my desk by early next week." Matt knew that his fishing plans for the weekend had better be put asideit was going to be a long and busy weekend for him. He immediately asked the accounting department to give him the last three years' financial 18 Case 4 Growing Pains statements (see Tables 1 and 2) and got right to work. Table 1 Healthy Grains, Income Statement For the Year Ended Dec. 31st 2015 2015 2014 2013 Sales Cost of Goods Sold Gross Profit Selling and G & A Expenses Fixed Expenses Depreciation Expense Earnings Before Interest and Taxes Interest Expense Earnings Before Taxes Taxes @ 40% Net Income 4,700,000 .8253,877,500 822,500 275,000 90,000 25,000 3,760,000 3,045,600 714,400 250,000 90,000 25,000 3,000,000 2,400,000 600,000 215,000 90,000 25,000 432,500 349,400 66,000 66,000 366,500 283,400 146600 113360 219,900 170,040 131940 60% 102024 270,000 66,000 204,000 81600 122,400 Retained Earnings 73440 Case 4 Growing Pains 19 Table 2 Healthy Grains Inc. Balance Sheet For the Year Ended Dec. 31st 2015 2015 2014 2013 60,000 250,416 Assets go Cash and Cash Equivalents Accounts Receivable Inventory Total Current Assets Prin iboraldis Plant & Equipment Accumulated Depreciation Net Plant & Equipment Total Assets tro 97,376 175.000 390,000 662,376 560,000 511,500 821,916 560,000 175,000 385,000 1,206,916 48,000 150.000 335,000 533,000 560.000 125,000 435,000 968,000 150,000 410,000 1,072,376 de 135,000 128,000 275,000 250,000 43,952 Liabilities and Owner's Equity Accounts Payable Notes Payable Other Current Liabilities Total Current Liabilities Long-Term Debt Total Liabilities Owner's Capital Retained Earnings Total Liabilities and Owner's Equity 453,952 275,000 728,952 155,560 322,404 1,206,916 151,352 275,000 50,000 476,352 250,000 726,352 155,560 190,464 1,072,376 46,000 424,000 300,000 724,000 155,560 88,440 968,000 Questions: a 1. This is the first time Matt and Geoff will be conducting a fi should proceed? Which approaches or models can they use? nancial forecast for Healthy Grains Inc. How do you think they What are the assumptions necessary for utilizing each model? 2. If Healthy Grains Inc. is operating its fixed assets at full ca- pacity, what growth rate can it support without the need for 3. Healthy Grains Inc. has a flexible credit line with the Uptown Bank. If Geoff decides to keep the debt-equity ratio constant, up to what rate of growth in revenue can the firm support? What assumptions are necessary when calculating this rate of growth? Are these assumptions realistic in the case of Healthy Grains Inc.? Explain. any additional external financing? 4. Initially, Matt assumes that the firm is operating at full ca- pacity. How much additional financing will it need to support revenue growth rates ranging from 25% to 40% per year? 5. After conducting an interview with the production manager, Matt realizes that Healthy Grains Inc. is operating its plant at 90% capacity. How much additional financing will it need to support growth rates ranging from 25% to 40%? 6. What actions can Geoff take in order to alleviate some of the need for external financing? Analyze the feasibility and impli- cations of each suggested action. 7. How critical is the financial condition of Healthy Grains Inc.? Is Dawn justified in being concerned about the need for finan- cial planning? Explain why. 8. Given that Geoff prefers not to deviate from the firm's 2015 debt-equity ratio, what will the firm's pro-forma income state ment and balance sheet look like under the scenario of 40% growth in revenue for 2016 (ignoring feedback effects)
