The Manning Company has financial statements as shown next, which are representative of the company$$s historical average. The firm is expecting a $35$ percent increase in sales next year, and management is concerned about the company$$s need for external funds. The increase in sales is expected to be carried out without any expansion of fixed assets, but rather through more efficient asset utilization in the existing store. Among liabilities, only current liabilities vary directly with sales.

page $119$

Using the percent$-$of$-$sales method, determine whether the company has external financing needs, or a surplus of funds. $($Hint: A profit margin and payout ratio must be found from the income statement.$)$

Income Statement

$$

Sales

$$

$$250,000$

$$

Expenses

$$

$192,000$

$$

Earnings before interest and taxes

$$

$$58,000$

$$

Interest

$$

$7,500$

$$

Earnings before taxes

$$

$$50,500$

$$

Taxes

$$

$15,500$

$$

Earnings after taxes

$$

$$35,000$

$$

Dividends

$$

$$7,000$

$$

Percent$-$of$-$sales method $($LO$4-3)$

Conn Man$$s Shops, a national clothing chain, had sales of $$350$ million last year. The business has a steady net profit margin of $9$ percent and a dividend payout ratio of $25$ percent. The balance sheet for the end of last year is shown.

The firm$$s marketing staff has told the president that in the coming year there will be a large increase in the demand for overcoats and wool slacks. A sales increase of $20$ percent is forecast for the company.