1 / 14

Tire City Case

Tire City Case. Pro forma income statements and balance sheets for 1996 & 1997 1/2 page – project the need for financing for the warehouse project determined by the projected cash flows; assess the financial health of Tire City before and after the project is completed

pearl
Télécharger la présentation

Tire City Case

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Tire City Case • Pro forma income statements and balance sheets for 1996 & 1997 • 1/2 page – • project the need for financing for the warehouse project determined by the projected cash flows; • assess the financial health of Tire City before and after the project is completed • General methodology for producing a forecast – average % of sales approach • Sales grow at 20% compounded • Cost of sales, S G & A – average for past three years – 96, use same for 97 • Depreciation – 96-213, 97-213+( 5% of 2400)‏

  2. Net interest expense – 96-129, 97-116 • Income tax – 45% • Dividends – 20% of PAT • Cash – 3% of sales • A/R – 15% of sales • Inventories – 96-given, 97-3148 • Gross plant and equipment – 96-given, 97-given • Accumulated depreciation – from income statement • Current liabilities – constant • A/P – 6% of sales • Bank debt - plug figure to balance • Accrued expenses – 7% of sales • Long term debt – decline by 125 • Common stock – constant • Retained earnings – beg RE +PAT-dividends

  3. Ratios – 95, 96, 97 • Profitability • Return on assets • Gross margin • Return on equity • Liquidity • Current ratio • Quick ratio • Leverage • Debt to assets • Debt to equity • Times interest earned • Activity • Sales/assets • Days receivable • Days inventory • Days payable

  4. Financial Statements - Forecast • Systematic projection – expected actions of management – budgets, schedules, financial statements • Working plan – statistics, ratios, relationships, funds flows, conditions, decisions, activities • Coordinated thinking – future • Reduces emergency decisions, surprises • Sets standards of performance – measure, control • Anticipate upcoming financial needs • Pro Forma statements - future

  5. Pro forma operating statement • Sales • Trend – growth in sales • % increase in number of stores • Inflation rate • Sales per square foot • Sales per employee • Assumptions – estimates – best guess • Historical relationships • Management forecasts • Industry data • Common sense • COGS – percentage of sales • Other items – less challenge – past ratio

  6. Financial Statements - Forecast • Income statement – project other items • Classify cost behavior – assumptions – vary with sales? • Depreciation – new assets • Interest – new debt • Taxes – rates change • Percentage of sales • Test assumptions – constant with sales? • Special cases • Interest - % of total financial liabilities • Adding new L/T assets – cost per store? • Tax rate – projected EBT • Classification of debt – current vs. L/T

  7. 1.

  8. 2.

  9. 2.

  10. 3.

  11. 3b.

  12. 3.

  13. 3.

  14. Read Note on Financial Forecasting; • Read Financial Forecasting Problems; • Assign #10 - Tire City Case (due 3/10, 3/11) • Extra credit – cash flows from operations – '96 and '97.

More Related