Projected Results to Meet Corporate Objectives

Tablon Inc. is a wholly owned subsidiary of Marbel Co. The philosophy of Marbel's management is to allow the subsidiaries to operate as independent units. Corporate control is exercised through the establishment of minimum objectives for each subsidiary, accompanied by substantial rewards for success and penalties for failure. The time period for performance review is long enough for competent managers to display their abilities.

Each quarter, the subsidiary is required to submit financial statements. The statements are accompanied by a letter from the subsidiary president explaining the results to date, a forecast for the remainder of the year, and the actions to be taken to achieve the objectives if the forecast indicates that the objectives will not be met.

Marbel management, in conjunction with Tablon management, had set the objectives listed below for the year ending May 31, 2017. These objectives are similar to those set in previous years.

• Sales growth of 20%
• Return on stockholders' equity of 15%
• A long-term debt-to-equity ratio of not more than 1.0
• Payment of a cash dividend of 50% of net income, with a minimum payment of at least $400,000

Tablon's controller has just completed the financial statements for the six months ended November 30, 2016, and the forecast for the year ending May 31, 2017. The statements follow.

After a cursory glance at the financial statements, Tablon's president concluded that not all objectives would be met. At a staff meeting of the Tablon management, the president asked the controller to review the projected results and recommend possible actions that could be taken during the remainder of the year so that Tablon would be more likely to meet the objectives.

Tablon Inc.
Income Statement
(thousands omitted)
	Year Ended	Six Months Ended	Forecast for Year Ending
	May 31,	November 30,	May 31,
	2016	2016	2017
Sales	$25,050	$15,030	$30,060
Cost of goods sold	$12,900	$8,030	$16,060
Selling expenses	5,070	3,490	6,980
Administrative expenses and interest	3,940	2,530	5,060
Income taxes (40%)	1,256	392	784
Total expenses and taxes	$23,166	$14,442	$28,884
Net income	$1,884	$588	$1,176
Dividends declared and paid	942	0	588
Income retained	$942	$588	$588

Tablon Inc.
Statement of Financial Position
(thousands omitted)
	May 31,	November 30,	Forecast for
	2016	2016	May 31, 2017
Assets
Cash	$410	$510	$510
Accounts receivable (net)	4,040	6,478	7,078
Inventory	7,010	8,520	8,610
Plant and equipment (net)	6,520	7,010	7,310
Total assets	$17,980	$22,518	$23,508
Liabilities and Equities
Accounts payable	$2,990	$4,020	$4,010
Accrued taxes	280	220	210
Long-term borrowing	6,020	9,000	10,010
Common stock	4,970	4,970	4,970
Retained earnings	3,720	4,308	4,308
Total liabilities and equities	$17,980	$22,518	$23,508

Required:

1. Calculate the projected results for each of the four objectives established for Tablon Inc. State which results will not meet the objectives by year-end. For return on stockholders' equity ratio, round raw calculations to three decimal places; then, enter answer as a percentage rounded to one decimal place. For example, .1782 rounds to .178 and would be entered as 17.8, indicating 17.8%. For long-term debt-to-equity ratio & Cash dividend payment, round to two decimal places.

Requirement	Projected Result		Meets Objective by Year-End?
Sales growth		%	Yes
Return on stockholders' equity		%	No
Long-term debt-to-equity ratio		to 1	No
Cash dividend payment	$		Yes