Question
How do I calculate the year-end bank loan balance for this question? Lydias sale grew by 30% in 2018 and 25% in 2019. She excepts
How do I calculate the year-end bank loan balance for this question?
Lydias sale grew by 30% in 2018 and 25% in 2019. She excepts similar growth in 2020, but this is straining her cash reserves. Her bank is concerned about her loan amount exceeding $100,000.
Because the fishing season effectively ends in late fall, Lydias accountant has completed the financials for 2019. There may be some small changes, but the current 2019 numbers are sufficiently accurate for 2020 planning purposes.
Use the actual financial statements for 2019 and the assumptions below to construct pro forma financial statements for 2020 for The Dry Fly. Submit your pro forma statements and refer to the pro forma statements to answer the following questions. The form on the next page should be used for your pro forma.
- Develop pro forma financial statements for 2020. (9 points)
- What will the 2020 year-end bank loan balance be? (2 points)
- Create a Sources and Uses statement to show the items driving Lydias loan need? (2 points)
- In a few sentences comment on the change in the loan amount compared to the large increase in Sales. If Sales growth begins to level off what will happen to the loan amount in the future? (2 points)
Assumptions
Sales will increase 25% in 2020
COGS will remain 72% of Sales in 2020.
GA&S will increase by $22,000 in 2020.
In 2020, depreciation expense will be $8,000, no assets will be sold and $10,000 of new assets will be purchased.
The bank loan has an interest rate of 8%. Base your Interest Expense for 2020 on the year-end bank loan balance
The tax rate is 30%.
Cash, A/Receivable, Inventory and A/Payable will be the same % of sales in 2020 as they were in 2019. The minimum cash balance is 1% of Sales.
All earnings are retained to finance growth (No dividends are paid).
- Assume Cash is kept at its minimum level as long as there is a loan outstanding.
- Common Stock is unchanged at $40,000 in 2020.
The Dry Fly Financial Statements
2019 Actual and 2020 Pro Forma
Income Statement | 2019 | 2020 Pro Forma |
Sales | 550,000.00 |
|
COGS | 396,000.00 |
|
Gross Margin | 154,000.00 |
|
GA&S Expense | 110,000.00 |
|
Interest Expense | 15,050.00 |
|
Depreciation Expense | 6,000.00 |
|
Taxable Income | 22,950.00 |
|
Taxes (30%) | 6,885.00 |
|
Net Income | 16,065.00 |
|
|
|
|
Balance Sheet |
|
|
Assets | 2019 | 2020 Pro Forma |
Cash | 5,500.00 |
|
A/Receivables | 22,000.00 |
|
Inventory | 137,500.00 |
|
Total Current Assets | 165,000.00 |
|
Net Fixed Assets | 80,000.00 |
|
Total Assets | 245,000.00 |
|
|
|
|
Liabilities & Equity | 2019 | 2020 Pro Forma |
A/Payable | 39,600.00 |
|
Bank Loan (8%) | 80,000.00 | - |
Total Current Liabilities | 119,600.00 |
|
Common Stock | 40,000.00 |
|
Retained Earnings | 85,400.00 |
|
Total Liabilities & Equity | 245,000.00 |
|
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