Question 4

1. JSN Enterprise is evaluating its financing requirements for the coming year. The firm has only been in business for 1 year, but its CFO predicts that the firm's operating expenses, current assets, net fixed assets, and current liabilities will remain at their current proportion of sales. Last year JSN had $14 million in sales with net income of $1.4 million. The firm anticipates that next year's sales will reach $15 million with net income rising to $2 million. Given its present high rate of growth, the firm retains all its earnings to help defray the cost of new investments. The firm's balance sheet for the year just ended is found below:

JSN Enterprises, Inc.

Balance Sheet

12/31/2001

% of Sales

Current assets

$4,000,000

25%

Net fixed assets

6,000,000

50%

Total

$10,000,000

Liabilities and Owners' Equity

Accounts payable

$4,000,000

25%

Long-term debt

1,000,000

NA^a

Total liabilities

$5,000,000

Common stock

2,000,000

NA

Paid-in capital

1,900,000

NA

Retained earnings

1,100,000

Common equity

5,000,000

Total

$10,000,000

Estimate JSN's total financing requirements (i.e., total assets) for 2002 and its net funding requirements (DFN).

B.Brief an overview of financial planning and its types.

Question 5

The balance sheet and income statement for the Simboro Paper Company are as follows:

Balance Sheet ($000)

Cash

$ 1,000

Accounts receivable

1,500

Inventories

1,000

Current assets

3,500

Net fixed assets

4,500

Total assets

$8,000

Accounts payable

$1,000

Accrued expenses

600

Short-term notes payable

200

Current liabilities

$1,800

Long-term debt

2,100

Owners' equity

4,100

Total liabilities and owners' equity

$8,000

Income Statement ($000)

Net sales (all credit)

$7,500

Cost of goods sold

(3,000)

Gross profit

4,500

Operating expenses

(includes $500 depreciation)

(3,000)

Operating income

1,500

Interest expense

(367)

Earnings before taxes

$1,133

Income taxes (40%)

(453)

Net income

$ 680

Calculate and interpret the financial ratios for 2017 corresponding to the industry norms provided as follows:

INDUSTRY NORMS

Current ratio

1.5 : 1

Inventory turnover

3 x

Total asset turnover

1 x

Operating profit margin

18%

Operating income return on investment

18%

Debt ratio

60%

Average collection period

100 days

Fixed asset turnover

1.5 :1

Return on equity

15%