Ronald, the CFO of New Innovation Inc, analyzed her firm's 2021 performance during the 2022 annual budget process. Some of the key observation she made were:
1. The firm's 2021 year end Net Worth stands at $555M.
2. The firm uses all available resources for funding - LT Debt, ST Debt, Trade Credit etc.
3. The 2021 year end balance of these funding resources were at $200M, $65M and $35M respectively. 4. The 2021 Revenue from core business was at $980M, an all time record since inception.
5. The firm has $55M short-term investment at the end of 2021 and will remain at this level in 2022.
6. The 2021 ending cash balance was at the level of their minimum cash balance, $150M.
7. The year end receivables are maintained at 50% of that year's sales with an aggressive receivable policy.
8. The 2021 Ending Inventory was at $10M.
9. The net fixed asset at end 2021 was $150M and there is no plan to add any new fixed asset in 2022.
Michelle is expecting a 20% annual increase in sales for 2022. The gross profit margin is 50%.
The total projected Operating Expense in 2022 including $23M depreciation is $188M.
The only Interest Expense to be considered here is 5% on LT Debt since the interest income from ST Investment generally offsets ST Debt related interest payments.
The Corporate tax rate is at 40%. They are expecting to give out a dividend of $34M at the end of 2022. The non cash current assets and current liabilities are expected to increase by 20% in 2022
Part A: Develop the projected Income Statement for 2022
Part B: Develop the consolidated Balance Sheet for 2021 (actual) and 2022 (Projected)
Part C: Compute Cash Flow from Operations using Modified Accrual Method of Cash Forecast