Pro forma balance sheet Peabody & Peabody has 2003 sales of $10 million. It wishes to analyze expected performance and financing needs for 2005—2 years ahead. Given the following information, respond to parts a and b.
(1) The percents of sales for items that vary directly with sales are as follows:
Accounts receivable, 12%
Inventory, 18%
Accounts payable, 14%
Net profit margin, 3%
(2) Marketable securities and other current liabilities are expected to remain unchanged.
(3) A minimum cash balance of $480,000 is desired.
(4) A new machine costing $650,000 will be acquired in 2004, and equipment costing $850,000 will be purchased in 2005. Total depreciation in 2004 is forecast as $290,000, and in 2005 $390,000 of depreciation will be taken.
(5) Accruals are expected to rise to $500,000 by the end of 2005.
(6) No sale or retirement of long term debt is expected.
(7) No sale or repurchase of common stock is expected.
(8) The dividend payout of 50% of net profits is expected to continue.
(9) Sales are expected to be $11 million in 2004 and $12 million in 2005.
(10) The December 31, 2003, balance sheet follows.
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Peabody & Peabody Balance Sheet December 31, 2003 ($000) |
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Assets |
Liabilities and Stockholders’ Equity |
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Cash |
$400 |
Accounts payable |
$1,400 |
|
Marketable securities |
200 |
Accruals |
400 |
|
Accounts receivable |
1,200 |
Other current liabilities |
80 |
|
Inventories |
1,800 |
Total current liabilities |
$1,880 |
|
Total current assets |
$3,600 |
Long term debt |
$2,000 |
|
Net fixed assets |
$4,000 |
Common equity |
$3,720 |
|
Total assets |
$7,600 |
Total liabilities and |
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|
|
|
stockholders’ equity |
$7,600 |
a. Prepare a pro forma balance sheet dated December 31, 2005.
b. Discuss the financing changes suggested by the statement prepared in part a.