Question
I am in a 440 Financial Analysis class working on a case study. Case: We are growing too fast, said Mason. I know I shouldnt
I am in a 440 Financial Analysis class working on a case study. Case: We are growing too fast, said Mason. I know I shouldnt complain, but we better have the capacity to fill the orders or well be hurting ourselves. Vicky and Mason Coleman started their oatmeal snacks company in 1998, upon suggestions of their close friends who simply loved the way their oatmeal tasted. After considerable help from local retailers and a sponsorship by a major bread company their firm, Oats R Us, was established in 1998 and reached sales of over $4 million by 2004. Given the current trend of eating healthy snacks and keeping fit, Mason was confident that sales would increase significantly over the next few years. The industry growth forecast had been estimated at 30% per year and Mason was confident that his firm would be able to at least achieve if not beat that rate of sales growth. Mason immediately called the treasurer, Jim, I need to know how much additional funding we are going to need for next year, said Mason. The growth rate of revenues should be between 25% and 40%. I would really appreciate if you can have the forecast on my desk by early next week. He asked the accounting department to give him the last three years financial statements and got to work.
I am working on calculating the answer to the following question: 5) At 90% operating capacity, how much additional financing will it need to support growth rates ranging from 25% to 40%?
| Oats 'R' Us | ||||||
| Income Statement for Year Ended Dec. 31st 2004 | ||||||
| 2004 | 2003 | 2002 | ||||
| Sales | $4,700,000 | $3,760,000 | $3,000,000 | |||
| Cost of Goods Sold | $3,877,500 | $3,045,600 | $2,400,000 | |||
| Gross Profit | $822,500 | $714,400 | $600,000 | |||
| Selling, General & Admin. Expenses | $275,000 | $250,000 | $215,000 | |||
| Fixed Expenses | $90,000 | $90,000 | $90,000 | |||
| Depreciation Expense | $25,000 | $25,000 | $25,000 | |||
| EBIT | $432,500 | $349,400 | $270,000 | |||
| Interest Expense | $66,000 | $66,000 | $66,000 | |||
| EBT | $366,500 | $283,400 | $204,000 | |||
| Taxes @ 40% | $146,600 | $113,360 | $81,600 | |||
| Net Income | $219,900 | $170,040 | $122,400 | |||
| Retained Earnings | $131,940 | $102,024 | $73,440 | |||
| Oats 'R' Us | ||||||
| Balance Sheet for Year Ended Dec. 31st 2004 | ||||||
| 2004 | 2003 | 2002 | ||||
| Assets | ||||||
| Current Assets | ||||||
| Cash and cash equivalents | $60,000 | $97,376 | $48,000 | |||
| Accounts recievable | $250,416 | $175,000 | $150,000 | |||
| Inventory | $511,500 | $390,000 | $335,000 | |||
| Total Current Assets | $821,916 | $662,376 | $533,000 | |||
| Non-Current Assets | ||||||
| Plant & Equipment | $560,000 | $560,000 | $560,000 | |||
| Accumulated depreciation | $175,000 | $150,000 | $125,000 | |||
| Net Plant & Equipment | $385,000 | $410,000 | $435,000 | |||
| Total Assets | $1,206,916 | $1,072,376 | $968,000 | |||
| Liabilities and Equities | ||||||
| Current Liabilities | ||||||
| Accounts Payable | $135,000 | $151,352 | $128,000 | |||
| Notes Payable | $275,000 | $275,000 | $250,000 | |||
| Other Current Liabilities | $43,952 | $50,000 | $46,000 | |||
| Total Current Liabilities | $453,952 | $476,352 | $424,000 | |||
| Non-Current Liabilities | ||||||
| Long-term Debt | $275,000 | $250,000 | $300,000 | |||
| Total Liabilities | $728,952 | $726,352 | $724,000 | |||
| Owner's Capital | $155,560 | $155,560 | $155,560 | |||
| Retained Earnings | $322,404 | $190,464 | $88,440 | |||
| Total Liabilities and Owner's Equity | $1,206,916 | $1,072,376 | $968,000 | |||
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