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) Forecast for Year Ended Year Ending May 31, November 30, May 31, 2016 2016 2017 Sales $25,050 $15,030 $30,060 Cost of goods sold $12,980 $8,050 $16,100 Selling expenses 4,980 3,550 7,100 Administrative expenses and interest 4,010 2,530 Income taxes (40%) 1,232 360 Total expenses and taxes $23,202 $14,490 $28,980 $1,848 $540 $1,080 Dividends declared and paid Income retained $924 $540 Six Months Ended 5,060 720 Net Income 924 0 540 $540 Forecast for May 31, 2017 $510 6,990 8,620 Tablon Inc. Statement of Financial Position (thousands omitted) May 31, November 30, 2016 2016 Assets Cash $400 $500 Accounts receivable (net) 4,050 6,380 Inventory 7,020 8,520 Plant and equipment (net) 6,500 7,000 Total assets $17,970 $22,400 Liabilities and Equities Accounts payable $3,020 $4,010 Accrued taxes 310 200 Long-term borrowing 5,990 9,000 Common stock 4,980 4,980 Retained earnings 3,670 4,210 Total liabilities and equities $17,970 $22,400 7,310 $23,430 $4,010 210 10,020 4,980 4,210 $23,430 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. Meets Objective by Requirement Projected Result Year-End? Sales growth % Yes Return on stockholders' equity % No Long-term debt-to-equity ratio to 1 No Cash dividend payment Yes
