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Financial Analysis and Forecasting Practice test homework Due October 6, 2023 Victoria Cardin is determined to get things under control at her company. She has decided that she should only try to grow sales over the next vear by 10%, and then aim for 20% the year after that. She understands that her COGS is much higher than it has been in the past. She knows that ber materials are a major part of that problem, and has renegotiated with the supplier to bring the price down sufficiently to get the cost ratio down to 65% in the coming year and she is confident that she can get the ratio down to 60% in the year after that. While her expenses seem to be in control, she is determined to lower them in total by 2% in the coming year and maintain them at that percentage of sales for the following year. She believes that you can use $5,000 as the interest charge for X4 and $3,000 for X5 Victoria expects depreciation to be $25,000 again for the next two years on existing assets. While she does not plan any foxed asset additions in the coming year, she knows that she will need to increase equipment by $13,000 in the year after that. That equipment will be depreciated using straight line over 5 years with one half of the first year's depreciation being taken in the year the equipment is purchased. Victoria is painfully aware that she did not get the expected benefits from her new customer. They are taking too long to pay, so she is working diligently to get them to pay their bills within 40 days and wants vou to use that as the ACP going forward. She has also decided to cap her short-term bank borrowing at $40,000 for year 4 and bring it down to $20,000 in year $. Victoria will use long-term debt to balance the balance sheet for the next two years. She thinks she should be able to get the inventory turn up to 3 times by the end of the second year from now, with some improvement in the immediate future. She plans to keep her cash balance at \$2,000 going forward. Based on her new arrangements with her materials suppliet, she expects her accounts payable balance to be $50,000 in year 4 and $55,000 in year 5 . She will not issue new stock or pay dividends until the financial situation has been improved. She wants you to forecast her financial statements for the next two years (vear 4 and year 5 ) and then do the ratio analysis to see if her plans will bring her back into alignment with the industry. 1. (20 points) Forecast the income Statements for years 4 and 5. Show your calculations. Include the common size percentages. 2. (20 points) Forecast the Balance Sheets for vears 4 and 5. 3. (10 points) Complete the ratio analysis for years X4 and X5. 4. (10 points) Explain in words how Victoria's financial position will change over the next two vears if her plans actually become reality, Use the common size percentages and the ratio anatysis to back up your analysis. Include an analysis of the things that were wrong in the past and whether or not those things will be fixed by these plans. Where will Cardin Controls be relative to their own past and the industry? 5. (S points) Comment on the likelihood of Victoria beinig able to achieve her plans. What actions will she need to take to make her plans reality and has she accounted for all of the costs that will be incurred? Bespecific: \begin{tabular}{lrrrr} Ratios & Industry & Year X1 & Year X2 & \multicolumn{1}{c}{ Year X3 } \\ Current & 1.8 times & 1.84 & 0.97 & 1.19 \\ Quick & 0.7 times & 0.78 & 0.31 & 0.44 \\ ACP & 37 days & 36.00 & 47.25 & 53.05 \\ Inv Turn & 3.5 times & 2.59 & 2.11 & 2.58 \\ Gross Profit margin & 38.00% & 40.00% & 40.00% & 30.00% \\ Debt Ratio & 45.00% & 50.00% & 59.49% & 62.62% \\ TIE & 3.8 times & 4.00 & 2.79 & 1.60 \\ ROS & 5.50% & 4.32% & 4.09% & 1.42% \\ ROA & 6.00% & 4.80% & 4.22% & 1.5.4% \\ ROOE & 10.20% & 9.60% & 10.42% & 4.12% \end{tabular} Cardin Controls (000s) Income Statement as of 12/31/XX