Ceramic Structures has experienced rapid growth over the past several years. Sales are expected to grow at 15% per year for the next three years. Sales growth has been fueled by aggressive pricing as well as increased use of ceramics in high-performance engines.

Asset growth has been financed by internal funds as well as the increased use of debt. At the end of 2012, the debt was restructured with a new 10% seven-year loan with principal payments of $1 million per year. In addition a $1.5 million working capital line was negotiated in 2011. It was increased to $2.5 million in 2013 and $3.5 million in 2014. Interest is charged at prime + 1%. (For class, we will use 9%.)

Cash balances will be kept around $250,000 and the credit line will average $2 million.

1.         Prepare Pro-forma statements for Ceramic and determine their need for funds for the years 2015-2017.

2.         Why is there a need for funds when Ceramic is generating a profit?

3.         If expected sales growth fell to 8% per year, what would be Ceramic’s need for funds?

4.         What would happen to Ceramic’s need for funds if accounts receivable increased to 25% of sales?

CERAMIC STRUCTURES ENGINEERING, INC.
BALANCE SHEETS
AT DECEMBER 31,
2010	2011	2012	2013	2014	Forecast
2,363	1,178	899	470	250
4,779	5,643	8,467	9,946	11,507
3,450	5,213	6,985	8,071	9,020
10,592	12,033	16,351	18,487	20,777
5,193	6,551	8,235	9,325	10,354
15,785	18,584	24,586	27,812	31,131
1,505	1,669	2,139	4,004	4,226
	1,000		1,000	2,500
		1,000	1,000	1,000
243	299	425	566	818
1,748	2,968	2,564	5,570	7,544
2,358	2,358	7,358	6,358	5,358
4,106	5,326	9,921	11,928	12,902
3,000	3,000	3,000	3,000	3,000
8,679	10,258	11,775	12,884	15,229
11,679	13,258	14,775	15,884	18,229
15,785	18,584	24,696	27,812	31,131
2010	2011	2012	2013	2014
26,470	33,856	42,709	56,196	70,245
20,087	25,386	32,199	45,125	55,560
6,383	8,471	10,510	11,071	14,685
1,324	1,693	2,563	3,372	4,215
1,642	1,726	1,815	1,910	2,010
1,064	1,342	1,666	1,910	2,121
289	342	487	703	772
4,318	5,103	6,531	7,895	9,118
2,065	3,368	3,979	3,176	5,566
330	444	1,170	1,123	1,223
1,735	2,924	2,809	2,053	4,344
798	1,345	1,292	944	1,998
937	1,579	1,517	1,109	2,346
100.00%	100.00%	100.00%	100.00%	100.00%
75.89%	74.98%	75.39%	80.30%	79.09%	79.00%
24.11%	25.02%	24.61%	19.70%	20.91%	21.00%
5.00%	5.00%	6.00%	6.00%	6.00%	6.00%
6.20%	5.10%	4.25%	3.40%	2.86%
4.02%	3.96%	3.90%	3.40%	3.02%	20.50%
1.09%	1.01%	1.14%	1.25%	1.10%	1.25%
16.31%	15.07%	15.29%	14.05%	12.98%
7.80%	9.95%	9.32%	5.65%	7.92%
1.25%	1.31%	2.74%	2.00%	1.74%
6.55%	8.64%	6.58%	3.65%	6.18%
46.00%	46.00%	46.00%	46.00%	46.00%	46.00%
3.54%	4.66%	3.55%	1.97%	3.34%
8.93%	3.48%	2.10%	0.84%	0.36%
18.06%	16.67%	19.83%	17.70%	16.38%	17.00%
13.03%	15.40%	16.35%	14.36%	12.84%	13.00%
40.01%	35.54%	38.28%	32.90%	29.58%
19.62%	19.35%	19.28%	16.59%	14.74%	14.00%
59.63%	54.89%	57.57%	49.49%	44.32%
5.69%	4.93%	5.01%	7.13%	6.02%	6.00%
	2.95%		1.78%	3.56%
		2.34%	1.78%	1.42%
0.92%	0.88%	1.00%	1.01%	1.16%	1.00%
6.60%	8.77%	6.00%	9.91%	10.74%
8.91%	6.96%	17.23%	11.31%	7.63%
15.51%	15.73%	23.23%	21.23%	18.37%
11.33%	8.86%	7.02%	5.34%	4.27%
32.79%	30.30%	27.57%	22.93%	21.68%
44.12%	39.16%	34.60%	28.27%	25.95%
59.63%	54.89%	57.83%	49.49%	44.32%
6.06	4.05	6.38	3.32	2.75
1.68	1.82	1.74	2.02	2.26
5.10	5.17	5.19	6.03	6.78
65.90	60.83	72.36	64.60	59.79
62.68	74.95	79.18	65.28	59.26
13%	18%	16%	11%	18%