Account

20X1

20X2

Cash
Accounts Receivable
Inventory
Total Current Assets
Fixed Assets
Miscellaneous
Assets

$100,000
300,000
600,000
1,000,000
450,000

$100,000
600,000
1,200,000
1,900,000
450,000

$100,000
1,200,000
2,400,000
3,700,000
1,450,000

$100,000
2,400,000
4,800,000
7,300,000
2,450,000

$100,000
4,800,000
9,600,000
14,500,000
3,450,000

50,000
$1,500,00
0

50,000
$2,400,00
0

50,000

50,000

50,000

$5,200,000

$9,800,000

18,000,000

$0
300,000

$0
1,000,000

$900,000
1,500,000

$900,000
4,550,000

900,000
4,550,000

300,000
0
300,000
1,200,000
$1,500,00
0

1,000,000
0
1,000,000
1,400,000
$2,400,00
0

2,400,000
1,000,000
3,400,000
1,800,000

5,450,000
1,750,000
7,200,000
2,600,000

5,450,000
1,750,000
7,200,000
10,800,000

$5,200,000

$9,800,000

18,000,000

$3,600,00
0
$2,400,00
0
$1,200,00
0
$1,033,33
3
$166,667
$0
$166,667
$66,667
100,000

$7,200,00
0
$4,800,00
0
$2,400,00
0
$2,066,66
7
$333,333
$0
$333,333
$133,333
200,000

$14,400,00
0
$9,600,000

$28,800,00
0
$19,200,00
0

$4,800,000

$9,600,000

$4,008,333
$791,667
$125,000
$666,667
$266,667
400,000

$8,081,667
$1,518,333
$185,000
$1,333,333
$533,333
800,000

$57,600,00
0
$38,400,00
0
$19,200,00
0
$16,000,00
0
$3,200,000
$533,334
$2,666,666
$1,066,666
$1,600,000

Total Assets
Notes Payable
Accounts Payable
Total Current
Liabilities
Long Term Debt
Total Liabilities
Net Worth
Total L&E
Net Sales
Cost of Sales
Gross Profit
Operatng Expenses
Operating Profit
Interest
Profit Before tax
Taxes (40%)
Net Profit

20X3

20X4

20X5E

Financial Forecasting Problem Instructions

Assume that you are the company CEO or at least in a position to effect whatever decisions you
feel are necessary for this company. Based on the analysis you prepared of the provided four
years of income statement and balance sheet information, project the fifth year for this company
and compute the fifth year ratios. You may add any other ratios you feel are relevant.
Prepare a written analysis of the financial results you predict for fifth year using the ratios you
have computed. Describe the reasons on which you based your projections and explain what you
expect as a result and what management should do going forward.
20X1

20X2

20X3

20X4

20X5

Current Ratio

3.33

1.9

1.54

1.34

2.66

Quick Ratio

1.33

.7

.54

.46

.89

Return on Sales

.028

.028

.028

.028

.028

Return on Equity

.083

.143

.222

.308

.15

Fixed Asset Turnover

16

9.93

11.76

16.7

Average Collection Period

30

30

30

30

30

Inventory Turnover
(based on Sales)

Times Interest Earned

--

--

6.33

8.21

6.00

Debt to Equity

.25

.71

1.89

2.77

.66

Current Debt to Equity

.25

.71

1.33

2.10

.50

Paper should not exceed 2-4 pages, plus the table of ratios.

Kurran Singh
May 18, 2015
Financial Management

The projections for 2015 are based upon the goals of continuing the rate of growth that
the company has successfully experienced in the previous four years, while reversing the more
worrying trends of the company, namely the high levels of debt financing. In order to do this, the
growth of the company this year will be financed much more aggressively through stockholder
equity rather than debt.

With these goals in mind, the following ratios continue in 2015 to follow the same trend
from the previous four years: the return on sales, the fixed asset turnover, the average collection
period, the inventory turnover, and the times interest earned. The current ratio and quick ratio are
projected to increase, reversing their trend of declining. The return on equity does decrease,
making it the only regression in outlook to the projected ratios compared with previous years.
However, it decreases to a level that is still above that of year 2, and will return to its increasing
trend in the future; this year is a one-time drop to make up for the aggressive debt financing
earlier. Debt to equity and current debt to equity both are projected to decrease dramatically,
finally reversing their increasing trends that were a result of expansion of the company that was
financed almost solely through debt.

Financing the 100% growth rate trend from earlier years through stockholder equity
rather than debt means issuing more stock. The company is still relatively new, and it is not as
bad of a sign for it to issue more stock so early on. While companies are often hesitant to do so,
as it can signal weakness to investors, in this case, with proper communication, the additional
stock will serve to indicate the opposite. It will signal the companys commitment to reversing
the trends that worried investors in the past, especially the high debt to equity ratio, while
allowing the company to continue to impress investors with its strong growth rate.

The capital raised through increasing the number of shares outstanding allows the
company to keep its current and long term debt levels stable from the previous year. The
companys assets increase with the doubling of inventory to keep pace with doubled sales, as
well as with increased fixed assets that are necessary to produce more output. The stable level of
debt combined with the increase in assets means that the current ratio as well as the quick ratio
both increase. These increases reverse the trend of decreasing current and quick ratios that would
make investors uneasy as to whether the company could continue to pay off its obligations.

Overall, the company is projected to continue its impressive growth while clamping
down on its mounting debt levels, making 2015 a year to look forward to for the company.