PROBLEM 9-1: PREPARING PRO FORMA FINANCIAL STATEMENTS

Comparative income statements and balance sheets for Coca-Cola are shown below ($ millions).

Year 2 Year 1

Income Statement

Net Sales $20,092 19,889

Cost of Sales 6,044 6,204

Gross Profit 14,048 13,685

Selling, general, and administrative 7,893 9,221

Depreciation and amortization expense 803 773

Interest expense (revenue) (308) 292

Income Before tax 5,660 3,399

Income tax expense 1,691 1,222

Net Income 3,969 2,177

Outstanding shares 3,491 3,481

Balance sheet

Cash $1,934 1,892

Accounts receivable 1,882 1,757

Inventories 1,055 1,066

Other current assets 2,300 1,905

Total Current Assets $7,171 6,620

Property, plant, and equipment 7,105 6,614

Accumulated Depreciation 2,652 2,446

Net property plant and equipment 4,453 4,168

Other long term assets 10,793 10,046

Total Assets $22,417 20,834

Accounts payable and Accrued Liabilities$3,679 3,905

Short term debt & Current maturities on long term debt 3,899 4,816

Income tax liabilities 851 600

Total current liabilities $8,429 9,321

Deferred income taxes & other liabilities 1,403 1,362

Long term debt 1,219 835

Total noncurrent liabilities $2,622 2,197

Common Stock 873 870

Capital surplus 3,520 3,196

Retain Earnings 20,655 18,543

Treasury stock 13,682 13,293

Total Shareholders' Equity 11,366 9,316

Total Liabilities and shareholders' equity $22,417 $20,834

Required:

a) Use the following ratios to prepare a projected income statement, balance sheet and statement of cash flows for year 3.

Sales Growth 1.02 %

Gross profit margin 69.92 %

Selling, general and administrative expense/sales 39.28 %

Depreciation expense/ Prior year PPE gross 12.14 %

Interest expense/Prior year long-term debt 5.45 %

Income tax expense/Pretax income 29.88 %

Accounts receivable turnover 10.68

Inventory turnover 5.73

Accounts payable turnover 1.64

Taxes payable/Tax expense 50.33%

Total assets/Stockholders' equity (financial leverage).2.06

Dividends per share $1.37

Capital expenditures/Sales 5.91 %

b) Based on your initial projection, how much external financing (long-term debt or stockholder's equity will Coca Cola need to fund its growth at projected increases in sales?