Description
Techno Corporation
Techno Corp
Income Statement
Actual results 2019 for 12 months ending December 31, 2019
Sales revenue (10,000 units at $250 each)$2,500,000Cost of goods sold ($100 per unit)($1,000,000)Gross profit$1,500,000Operating expenses($500,000)Operating profit$1,000,000Interest expense($200,000)Net profits before taxes$800,000Taxes (30%)($240,000)Net profits after tax$560,000Dividends on common stock$224,000
Techno Corp
Balance Sheet
December 31, 2019
ASSETSCash$500,000Marketable securities$300,000Accounts receivable$500.000Inventory$400,000Total current assets$1,700,000Net fixed assets$2,000,000Total assets$3,700,000LIABILITIES AND STOCKHOLDER’S EQUITYAccounts payable$150,000Taxes payable$120,000Notes payable (long-term debt due within one year)$200,000Other current liabilities$200,000Total current liabilities$670,000Long-term debt$1,800,000Total liabilities$2,470,000Common stock$500,000Retained earnings$730,000Total liabilities and stockholder’s equity$3,700,000
Option #1: Techno Corporation Paper
Techno Corporation is developing its pro forma financial statement forecasts for 2020 and 2021. Its actual results for 2019 are shown in the income statement and balance sheet.
Background
- The relationship between cost of goods sold and sales revenue Is expected to continue in the near term and no inflation is expected.
- Operating expenses include $200,000 in depreciation (fixed expense), the remainder is variable costs tied to sales revenue.
- Fixed assets are adequate to support sales growth for the next two years and long=term debt will decline $200,000 per year.
- Dividend policy calls for 40% of net profits after taxes to be paid before yearend.
- Interest is 10% of long-term debt and notes payable
- Inventory needs to grow at half the rate of sales growth and accounts receivable maintains the same relationship to sales as was the case on December 31, 2019 for 2019 sales. Accounts payable maintains the same relationship to cost of good sold as of December 31, 2019 for 2019 sales.
- Any cash over $500,000 is put in marketable securities, Interest income is negligible
- Other current liabilities are stable.
- Taxes payable are equal to one-half of the current year’s taxes.
- Assume sales will increase 10% per year for each of the next two years.
Assignment
You are a consultant, external to this firm. Create two years (2020 and 2021) of pro forma income statements and balance sheets and the statement of cash flows, including operating, investing and financing sections for 2020 only.
Prepare a document with tables showing the pro forma statements in tables. Explain the purposes of pro forma (projected financial statements) and who might find them useful.
