CS has experienced rapid growth over the past several years. Sales are expected to grow @12% per annum for the next three years. Sales growth has been fueled by aggressive pricing as well as increased use of ceramics in high performance engines. As the company has grown it has enjoyed economies of scale in its overhead.

Asset growth has been financed by internal funds as well as the increased use of debt. In 2013 debt was restructured with a new 7-year loan with principal payments of $1m per year and an interest rate of 8%. The firm would like to maintain its long-term debt at $12 million.

CS working capital line (notes payable) was increased to a maximum of 4.0 million in 2005. Interest was charged @prime + 3. (For class we will use an interest rate of 6% {3%+3%}). They exceeded the line in 2015. CS would like to keep its line of credit at $3.0 million.

CS is planning to pay out dividends of $625,000 per annum.

Assume Gross Fixed Assets will be 33% of Revenue and Depreciation will be 2.4% of Revenue.

Cash balances will be kept at around $300,000

Build formulas for the workshee. No two firms are the same. Building the worksheet will generate a better understanding of the forecasting process.

1.Prepare Common Size Statements (%age of Sales) for both I/S & B/S.

2.Prepare pro-forma statements (I/S and B/S) for CS and determine their need for funds for the years 2016-2018.

3.What would happen to CSs profit, and need for funds if A/R was decreased to 65 days for the period 2016-2018.

4.If expected sales growth fell to 8% per annum what would be CSs need for funds?

5.Assume CS has a cost of capital of 11%. Is CS creating value for its shareholders?

2011	2012	2013	2014	2015	Forecast		2016	2017	2018
						ASSETS
2,363	1,178	899	470	250		Cash
4,779	5,643	8,467	10,946	14,307		Accounts receivable
3,450	5,213	6,985	8,071	11,320		Inventory
10,592	12,033	16,351	19,487	25,877		Current assets
8,345	11,045	15,505	18,395	22,045		Gross Fixed Assets
3,152	4,494	6,037	7,637	9,362		Accum. Depreciation
5,193	6,551	9,468	10,758	12,683		Net fixed assets
15,785	18,584	25,819	30,245	38,560		Total assets
						LIABILITIES AND EQUITIES
1,505	1,669	2,139	4,100	5,176		Accounts payable
	1,000	123	2,337	4,500		Notes payable (line of credit)
		1,000	1,000	1,000		Curent Portion LTD
243	299	425	566	818		Accruals
1,748	2,968	3,687	8,003	11,494		Current liabilites
4,858	5,258	10,307	9,358	11,837		Long-term debt
6,606	8,226	13,994	17,361	23,331		Total Liabilities
1,500	1,500	1,500	1,500	1,500		Common stock
7,679	8,858	10,325	11,384	13,729		Retained earnings
9,179	10,358	11,825	12,884	15,229		Total Equity
15,785	18,584	25,819	30,245	38,560		Total Equity & Liab.
2011	2012	2013	2014	2015			2016	2017	2018
26,470	33,856	42,709	56,196	70,245		Sales
2,567	3,450	5,213	6,985	8,071		Beginning Inventory
20,970	27,149	33,971	46,211	58,809		Purchases
23,537	30,598	39,184	53,196	66,880		Goods Available for Sale
3,450	5,213	6,985	8,071	11,320		Less: Ending Inventory
20,087	25,386	32,199	45,125	55,560		Cost of Goods
6,383	8,471	10,510	11,071	14,685		Gross Profit
1,324	1,693	2,563	3,372	4,215		G and A expenses
1,642	1,726	1,815	1,910	2,010		Fixed operating expenses
1,064	1,342	1,666	1,910	2,121		Depreciation
289	342	487	703	772		Miscellaneous
4,318	5,103	6,531	7,895	9,118		Total operating expenses
2,065	3,368	3,979	3,176	5,566		EBIT
330	444	1,170	1,123	1,223		Interest
1,735	2,924	2,809	2,053	4,344		EBT
798	1,345	1,292	944	1,998		Taxes
937	1,579	1,517	1,109	2,346		Net income