(Example 4-3) Starbucks Corp is forecasting 2014 near the end of 2013. The estimated year-end financial statements and a worksheet for the forecasts are shown below.

STARBUCKS CORP

PROJECTED INCOME STATEMENT

($000)

2013 2014

$ % $ %

Revenue $300,000 100.0 100.0

COGS $174,000 58.0

Gross Margin $126,000 42.0

Expenses $ 60,000 20.0

EBIT $ 66,000 22.0

Interest (10%) $ 6,600 2.2

EBT $ 59,400 19.8

Inc Tax (40%) $ 23,670 7.9

EAT $ 35,640 11.9

STARBUCKS CORP

PROJECTED BALANCE SHEET

($000)

ASSETS LIABILITIES & EQUITY

20X1 20X2 20X1 20X2

C/A $180,000 C/L $ 85,000

F/A $145,000 Debt $ 80,000

Total $325,000 Equity $160,000

Total $325,000

Management expects the following next year:

An 10% increase in revenue.

Price cutting will cause the cost ratio (COGS/Sales) to deteriorate (increase) by 1% of sales from its current level.

Expenses will increase at a rate that is one-half of that of sales.

C/A and C/L will increase proportionately with sales.

Projected interest payment is $6,759 in 2014

Net fixed assets will increase by $5 million.

All interest will be paid at 10%.

Federal and state income taxes will be paid at a combined rate of 40%.

Make a forecast of Starbucks complete income statement and balance sheet. Work to the nearest thousand dollars.

STARBUCKS CORP

PROJECTED INCOME STATEMENT

($000)

	2013			2014
	$	%		$	%
Revenue	$ 300,000	100.0%			100.0%
Cost of Goods Sold	174,000	58.0%
Gross Margin	$ 126,000	42.0%
Expenses	60,000	20.0%
EBIT	66,000	22.0%
Interest (10%)	8,000	2.7%		6,759
EBT	$ 58,000	19.3%
Income Tax (40%)	23,200	7.7%
EAT	$ 34,800	11.6%

STARBUCKS CORP

PROJECTED BALANCE SHEET

($000)

	ASSETS				LIABILITIES & EQUITIES
	2013	2014			2013	2014
Current Assets	$ 180,000			Current Liabilities	$ 85,000
Fixed Assets	145,000			Long Term Debt	80,000
Total	$ 325,000			Equity	160,000
				Total	$ 325,000