Problem 4-28 Percent-of-sales method [LO4-3]

The Manning Company has financial statements as shown next, which are representative of the companys historical average. The firm is expecting a 35 percent increase in sales next year, and management is concerned about the companys need for external funds. The increase in sales is expected to be carried out without any expansion of fixed assets, but rather through more efficient asset utilization in the existing store. Among liabilities, only current liabilities vary directly with sales.

Income Statement
Sales	$	220,000
Expenses		171,200
Earnings before interest and taxes	$	48,800
Interest		8,300
Earnings before taxes	$	40,500
Taxes		16,300
Earnings after taxes	$	24,200
Dividends	$	7,260

Balance Sheet
Assets			Liabilities and Stockholders' Equity
Cash	$	8,000	Accounts payable	$	23,400
Accounts receivable		33,000	Accrued wages		1,850
Inventory		69,000	Accrued taxes		3,350
Current assets	$	110,000	Current liabilities	$	28,600
Fixed assets		93,000	Notes payable		8,300
			Long-term debt		21,500
			Common stock		117,000
			Retained earnings		27,600
Total assets	$	203,000	Total liabilities and stockholders' equity	$	203,000

Using the percent-of-sales method, determine whether the company has external financing needs, or a surplus of funds. (Hint: A profit margin and payout ratio must be found from the income statement.) (Do not round intermediate calculations.)

the firm: _has/needs___,______,__in external funds/in surplus funds__