Forecasting Report providing a 5 year forecast of the balance sheet and income statement to upper management. Select a publicly traded retailer who has at least the last three years of financial statements publicly available

Income Statement Forecast Assumptions:

Sales

Assume that sales will grow 4.0% each year from Year +1 through Year +5.

Cost of Goods Sold

Assume that the cost of goods sold to sales percentage will be 75.0% for Year +1 to Year +5.

Selling and Administrative Expenses

Assume that the selling and administrative expenses will average 19.0% of sales for Year +1 to Year +5.

Interest Income

Assume the Company will earn interest income based on a 2.6% interest rate on average cash balances (that is, the sum of beginning and end- of-year cash balances divided by 2) for Year +1 through Year +5.

Interest Expense

If applicable, assume a 4.2% interest rate for all outstanding borrowing (short-term and long-term debt, including capital leases, and the current portion of long-term debt) for the Company for Year +1 through Year +5. Compute interest expense on the average amount of interest-bearing debt outstanding each year. (Note: Projecting the amount of interest expense must await projection of the interest-bearing debt accounts on the balance sheet.)

Income Tax Expense

Compute the average effective income tax rate for the past three years and assume your company's effective income tax rate remains constant (@ the three year average) for Year +1 through Year +5. (Note: Projecting the amount of income tax expense must await computation of income before taxes.)

Balance Sheet Forecast Assumptions:

Cash

Use the cash as the "flexible" financial account to equate total assets with total liabilities plus shareholders' equity. Projecting the amount of cash must await projections of all other balance sheet amounts.

Accounts Receivable

Assume that accounts receivable will continue to turnover at the same rate and increase at the growth rate in sales.

Inventories

Assume that ending inventory will continue to be equal to 44 days of cost of goods sold, in Year +1 to Year +5.

Prepaid Expenses

Assume that prepayments will grow at the growth rate in sales.

Property, Plant, and Equipment

Compute the average property, plant and equipment additions over the previous three years.Assume that property, plant, and equipment will continue to grow at the same rate (or dollar amount) each year from Year +1 through Year +5.

Accumulated Depreciation

Assume the Company recognizes a full year of depreciation on new property, plant, and equipment in the first year of service.

Accounts Payable

Assume that ending accounts payable will approximate 40 days of inventory purchases in Years +1 to +5. To compute the ending accounts payable balance using a 40-day turnover period, remember to add the change in inventory to the cost of goods sold to obtain the total amount of credit purchases of inventory during the year.

Accrued Liabilities

Assume that income taxes payable and deferred tax assets and liabilities grow at 3.0% per year in Year +1 through Year +5.

Short-Term Debt, Current Maturities of Long-Term Debt, Capital Leases, and Long- Term Debt

If your Company has debt then assume the short-term debt, current maturities of long-term debt, and long-term debt will grow at 3.0% per year in Year +1 through Year +5.

Common Stock and Additional Paid-in Capital

Assume that common stock and additional paid-in capital will continue to be 2.0% of total assets for Year +1 through Year +5.

Retained Earnings

Assume that Company will maintain a policy to pay dividends equivalent to 30% of net income attributable to Company shareholders in Year +1 through Year +5

Cash

Assume the Company uses cash as the flexible financial account to balance the balance sheet. The resulting cash balance each year should be the total amount of liabilities and shareholders' equity minus the projected ending balances in all non-cash asset accounts