PERCENTAGE OF SALES MODEL

EXECUTIVE CHEESE
Income Statement
Sales 1,200
Cost 1,000
Net income 200
Balance Sheet
Assets 2,000 Debt 800
Equity 1,200
Total 2,000 Total 2,000
Financial planners forcast that total sales next year will 10%
SOLUTION
EXECUTIVE CHEESE
Proforma Income Statement
Sales 1,320
Cost 1,100
Net income 220
proforma Balance Sheet
Assets 2,200 Debt 880
Equity 1,320
Total 2,200 Total 2,200
Maintain a fixed debt equity ratio
Both debt & equity increased by 10%
Must issue 80 in additional debt (880-800)
Equity existing 1,200
NI 220
1,420
Equity new 1,320
Dividend payment 100 balancing item

BALANCING ITEM
EXECUTIVE CHEESE
Income Statement
Sales 1,200
Cost 1,000
Net income 200
Balance Sheet
Assets 2,000 Debt 800
Equity 1,200
Total 2,000 Total 2,000
Financial planners forcast that total sales next year will 10%
Pay a fixed dividend 180
Raise any extra money by an issue of debt (balancing item)
SOLUTION
EXECUTIVE CHEESE
Proforma Income Statement
Sales 1,320
Cost 1,100
Net income 220
proforma Balance Sheet
Assets 2,200 Debt 960
Equity 1,240
Total 2,200 Total 2,200
Equity existing 1,200
NI 220
1,420
Dividend 180
New Equity 1,240
Total assets 2,200
Equity 1,240
New Debt 960 Balancing item
Debt Equity Ratio changed
Must issue debt for 160 (960-800)

BALANCING ITEM
EXECUTIVE CHEESE
Income Statement
Sales 1,200
Cost 1,000
Net income 200
Balance Sheet
Assets 2,000 Debt 800
Equity 1,200
Total 2,000 Total 2,000
Financial planners forcast that total sales next year will 10%
Pay a fixed dividend 180
Issue at most Debt of 100
Raise any extra money by an issue of equity (balancing item)
SOLUTION
EXECUTIVE CHEESE
Proforma Income Statement
Sales 1,320
Cost 1,100
Net income 220
proforma Balance Sheet
Assets 2,200 Debt 900
Equity 1,300
Total 2,200 Total 2,200
Equity existing 1,200
NI 220
1,420
Dividend 180
New Equity 1,240
Total assets 2,200
Debt 900
Equity 1,300 Balancing item
Debt Equity Ratio changed
Must issue equity for 100 (1300-1200)
g item)
Q.1 INCOME STATEMENT BALANCE SHEET Q.6
SALES 16,500.00 ASSETS 4,730.00 DEBT 3,080.00
COST 12,100.00 EQUITY 1,650.00
NI 4,400.00 4,730.00 4,730.00
EQUITY BEG 1,500.00
NI 4,400.00
5,900.00
EQUITY END 1,650.00
DIVIDEND 4,250.00 PLUG IN VARIABLE

Q.2 INCOME STATEMENT BALANCE SHEET

SALES 16,500.00 ASSETS 4,730.00 DEBT 2,800.00
COST 12,100.00 EQUITY 3,700.00
NI 4,400.00 4,730.00 6,500.00
50% DIVIDEND 2,200.00
2,200.00 NO EXTERNAL FINANCING (1,770.00)
ADD: EQUITY 1,500.00
TOTAL EQUITY 3,700.00

Q.3 NEW SALES 5,320.00

LESS: EXISTING SALES 3,800.00
CHANGE IN SALES 1,520.00
%AE INCREASE IN SALES 40% 1,520 ÷ 3,800
INCOME STATEMENT BALANCE SHEET
SALES 5,320.00 ASSETS 18,620.00 DEBT 9,200.00
COST 2,394.00 EQUITY 7,026.00
NI 2,926.00 18,620.00 16,226.00
ADD: EQUITY BEG 4,100.00 EXTERNAL FINANCING NEEDED 2,394.00
EQUITY END 7,026.00 EXTERNAL FINANCING NEEDED 22,045.50
EXTERNAL FINANCING NEEDED 808.60
Q.4 NEW SALES 24,000.00
LESS: EXISTING SALES 19,200.00
CHANGE IN SALES 4,800.00
%AE INCREASE IN SALES 25%
EXISTING INCOME 2,409.00
DIVIDEND PAID 1,445.40
DIVIDEND PAOUT RATIO 60% 1,445.40 ÷ 2,409
INCOME STATEMENT BALANCE SHEET
SALES 24,000.00 ASSETS 116,250.00 DEBT 20,400.00
COST 19,437.50 EQUITY 73,804.50
PBT 4,562.50 116,250.00 94,204.50
TAX (34%) 1,551.25 EXTERNAL FINANCING NEEDED 22,045.50
NI 3,011.25
LESS: 60% DIVIDEND 1,806.75
 INCREASE IN EQUITY 1,204.50
ADD: EQUITY BEGINNING 72,600.00
EQUITY ENDING 73,804.50

Q.5 INCOME STATEMENT BALANCE SHEET

SALES 3,596.00 CA 4,640.00 CL 870.00
COST 3,016.00 FA 3,480.00 LTL 1,250.00
PBT 580.00 EQUITY 5,191.40
TAX 197.20 8,120.00 7,311.40
NI 382.80 EXTERNAL FINANCING NEEDED 808.60
LESS: 50% DIVIDEND 191.40
INCREASE IN EQUITY 191.40
ADD: EQUITY BEGINNING 5,000.00
EQUITY ENDING 5,191.40
EXISTING INCOME 111,930.00
DIVIDEND PAID 44,772.00
DIVIDEND PAOUT RATIO 40% 44,772 ÷ 111,930
INCOME STATEMENT
SALES 1,176,000.00
COST (924,000.00)
OTHER EXP (16,800.00)
TOTAL COST (940,800.00)
EBIT 235,200.00
INTEREST (23,800.00)
EBT 211,400.00
TAX (35%) (73,990.00)
NI 137,410.00
LESS: 40% DIVIDEND 54,964.00
INCREASE IN R.E. 82,446.00
ADD: R.E. 280,000.00
RETAINED EARNING ENDING 362,446.00
BALANCE SHEET
CASH 33,600.00 A/P 84,000.00
A/R 58,800.00 N/P 7,000.00
INV 100,800.00 CL 91,000.00
CA 193,200.00 LTL 168,000.00
FA 385,000.00 C.STOCK 21,000.00
RE 362,446.00
578,200.00 642,446.00
DIFFERENCE (64,246.00)
AS THE COMPANY IS CURRENTLY OPERATING AT FULL CAPACITY, IT MUST
INCREASED ITS FIXED ASSETS BY 20% TO MEET THE ADDITIONAL PRODUCTION
INCREASED IN FIXED ASSETS 77,000.00
LESS: B.SHHET DIFFERENCE (64,246.00)
EXTERNAL FINANCING NEEDED 12,754.00
 2008 Financial Statement
Income Statement
Revenue 2,000
COGS 1,800
EBIT 200
Interest 40
Earnings before taxes 160
State and federal tax 64
Net income 96
Dividends 64
Retained earnings 32
Balance Sheet
Assets
Net working capital 200
Fixed assets 800
Total assets 1,000
Liabilities and shareholders' equity
Long term debt 400
Shareholders' equity 600
Total Liab + Equity 1,000

You are asked to prepare proforma financial statements for Exec

Assumptions
Sales and operating costs are expected to be up by 10% over 20
Interest rates will remain at their current level
The firm will stick to its traditional dividend policy of paying out
Executive will need 10% more fixed Assets and net working nex
First Stage Pro Forma Statements
Income Statement
Revenue 2,200
COGS 1,980
EBIT 220
Interest 40
Earnings before taxes 180
State and federal tax 72
Net income 108
Dividends 72
Earnings retained 36
Balance Sheet
Assets
Net working capital 220
Fixed assets 880
Total assets 1,100
Liabilities and shareholders' equity
Long term debt 400
Shareholders' equity 636
Total Liab + Equity 1,036
Required external financing 64
al Statement
me Statement

90% of sales
Difference = 10% of sales
10% of debt at start of year
EBIT-interest
40% of (EBIT-interest)
EBIT-interest-taxes
Payout ratio=2/3
Net income - dividends
ance Sheet

10% of sales
40% of sales
50% of sales

Equals total assets

a financial statements for Executive Fruits for 2009

cted to be up by 10% over 2008
urrent level
dividend policy of paying out two-thirds of earnings
d Assets and net working next year
orma Statements
me Statement
10% higher
10% higher
10% higher
unchanged
EBIT-interest
40% of (EBIT-interest)
EBIT-interest-taxes
Payout ratio=2/3
Net income - dividends
nce Sheet

10% higher
10% higher
10% higher

Temp held fixed

Increased by RE
Sum of debt plus equity