K M N O P 0 R B D E F H 1 L 1 You are an analyst covering Easy Chair Company. You have received data related to the past four fiscal years and want to forecast 2020 performance, 2 3 EASY CHAIR COMPANY 4 INCOME STATEMENTS 5 Idollars in millions) 6 2016 2017 2018 2019 7 Net sales $ 420.00 $ 486.80 $ 553.20 $ 592.30 8 Cost of sales $ (289.80) $ (352.10) $ (397.80) $ (430.40) 9 Gross profit $ 130.20 $ 134.70 155.40$ 155.40 $161.90 10 SG&A $ (85.50) S 191.40) S (106.90) S (111.60) 11 EBIT $ $ 44.70 $ 43.30 $ 48.50 $ 50.30 12 Interest expense $ (1.90) $ (4.00) $ (7.60) $ (7.20) ) 13 Other income $ 2.10 S 2.70 $ 3.10 $ 2.50 14 Income before taxes $ 44.90 $ 42.00 $ 44.00 $ 45.60 15 Taxes $ 120.30) S (15.50) S 116.50) S (17.30) 16 Net income $ 24.60 $ 26.50 $ 27.50 $ 28.30 17 18 a. How much have the following items grown each year (in percentage terms)? What is the average growth rate across all years presented? 19 20 2016 2017 2018 2019 Average 21 Sales growth 22 Cost of sales 23 Interest expense 24 25 b. Easy Chair has released projections for 2020 based on projected sales growth of 12%. COGS and SG&A are expected to increase proportionately with sales. 26 Interest expense is projected to increase by half, and other income is expected to remain the same. The tax rate is projected to remain at its 2019 level. Fill in the 27 pro forma income statement for 2020 based on this guidance. 28 29 EASY CHAIR COMPANY 30 INCOME STATEMENTS 31 (dollars in millions) b. 32 2016 2017 2018 2019 2020 (forecasted) 33 Net sales $ 420.00 $ 486.80 $ 553.20 $ 592.30 34 Cost of sales $ ( $ (289.80) $ (352.10) $ (397.80) $ (430.40) 35 Gross profit $ 130,20' 134.70 155.40 161.90 36 SG&A S $185.501 S 191.40) S (106.90) S (111.50) 37 EBIT $ 44.70 S 43.30 $ 48.50 $ 50.30 38 Interest expense $ (1.90) $ (4.00) $ (7.60) $ (7.20) 39 Other income $ 2010 S 2.70 $ 3.10 S 2.50 40 Income before taxes $ 44.90 $ 42.00 $ 44.00 $ 45.60 41 Taxes $ 120.30 S (115.50 $ 116.50) S (17.30 42 Net Income $ 24.60 $ 26.50 $ 27.50 $ 28.30 43 44 C. Do you think Easy Chair's guidance for 2020 is reasonable? Why or why not? Do any items stick out? What would you change? What other information would 45 you need to make a better forecast? Make reference to your answers from part a. 46 47 48 49 50 51 52 53 54 55 d. Plot Easy Chair Co.'s net income over time, induding the 2020 projection. Make sure your chart includes a title and that your axes have values on them. 56 57 58 59 60 )