Fill This Form To Receive Instant Help
Fill This Form To Receive Instant Help
Homework answers / question archive / 1)The following numbers were calculated from the financial statements for a firm for 2012 and 2011 2012 2011 Return on common equity (ROCE 15
1)The following numbers were calculated from the financial statements for a firm for 2012 and 2011
|
2012 |
2011 |
|
|
Return on common equity (ROCE |
15.2% |
13.3% |
|
Return on net operating assets (RNOA) |
11.28% |
12.75% |
|
Sales (millions) |
$16,754 |
$11,035 |
|
Average net operating assets (millions) |
$ 6,981 |
$ 4,414 |
|
Average net financial obligations (millions) |
$ 2,225 |
$ 241 |
|
Average common equity (millions) |
$ 4,756 |
$ 4,173 |
Explain to what extent the change in common equity from 2011 to 2012 is due to sales growth, net assets required to support sales, and borrowing.
2)Pro forma balance sheet-Basic Leonard Industries wishes to prepare a pro forma balance sheet for December 31, 2020. The firm expects 2020 sales to total $3,000,000. The following information has been gathered. (1) A minimum cash balance of $49,800 is desired. (2) Marketable securities are expected to remain unchanged. (3) Accounts receivable represent 9.9% of sales. (4) Inventories represent 11.6% of sales. (5) A new machine costing $90,400 will be acquired during 2020. Total depreciation for the year will be $31,700. (6) Accounts payable represent 14.1% of sales. (7) Accruals, other current liabilities, long-term debt, and common stock are expected to remain unchanged. (8) The firm's net profit margin is 4.2%, and it expects to pay out $69,500 in cash dividends during 2020. (9) The December 31, 2019, balance sheet follows:
a. Use the judgmental approach to prepare a pro forma balance sheet dated December 31, 2020, for Leonard Industries. b. How much, if any, additional financing will Leonard Industries require in 2020? Discuss. c. Could Leonard Industries adjust its planned 2020 dividend to avoid the situation described in part b? Explain how. ? - i Data Table Mar.) (Click on the icon here 2 in order to copy the contents of the data table below into a spreadsheet.) Leonard Industries Balance Sheet December 31, 2019 Assets Liabilities and Stockholders' Equity Cash $44,800 Accounts payable Marketable securities 14,900 Accruals Accounts receivable 254,700 Other current liabilities Inventories 340,300 Total current liabilities Total current assets $654,700 Long-term debt Net fixed assets 600,400 Common stock Retained earnings Total assets $1,255,100 Total liabilities and stockholders' equity $394,500 60,100 30,400 $485,000 349,900 200,000 220,200 $1,255, 100 Print Done
a. Use the judgmental approach to prepare a pro forma balance sheet dated December 31, 2020, for Leonard Industries. Complete the assets part of the pro forma balance sheet for Leonard Industries for December 31, 2020 below: (Round to the nearest dollar.) Pro Forma Balance Sheet Leonard Industries December 31, 2020 Assets Current assets HA Cash Marketable securities Accounts receivable Inventories Total current assets Net fixed assets Total assets $
Complete the liabilities and stockholders' equity part of the pro forma balance sheet for Leonard Industries for December 31, 2020 below: (Round to the nearest dollar.) Pro Forma Balance Sheet Leonard Industries December 31, 2020 Liabilities and stockholders' equity Current liabilities $ Accounts payable Accruals Other current liabilities Total current liabilities $ Long-term debt Total liabilities $ Common stock $ Retained earnings Total stockholders' equity External funds required Total liabilities and stockholders' equity $
b. How much, if any, additional financing will Leonard Industries require in 2020? Discuss. (Select all the answers that apply.) A. Based on the forecast and desired level of certain accounts, the financial manager should arrange for credit of $54,900. B. Based on the forecast and desired level of certain accounts, the financial manager should arrange for credit of $59,900. C. Leonard Industries' retained earnings are enough to cover all of the company's desired level of certain accounts. D. If financing cannot be obtained, one or more of the constraints must be changed.
c. Could Leonard Industries adjust its planned 20202016 dividend to avoid the situation described in part b? Explain how. (Select all the answers that apply.) A. If Leonard Industries reduced its 2020 dividend to $15,600 or less, the firm would not need any additional financing B. Leonard Industries' retained earnings are enough to cover all of the company's desired level of certain accounts including dividends. OC. By reducing the dividend, more cash is retained by the firm to cover the growth in other asset accounts. D. If Leonard Industries reduced its 2020 dividend to $20,600 or less, the firm would not need any additional financing.
1)
Growth in equity =(4756-4173)/4173= 13.97%
Frowth in equity is die to increase is sales as sales will increase, revenue will increase that leads to increase in net profit which will in turn increases the retained earning of distributed among share holders .In both the case equity will increase because retained earnings comes under equity un balance sheet and if it will be distributed among share holder then their satisfaction will increase and hence investment in equities will increase.
2)
a. Preparation of Pro Forma Balance Sheet
Calculation of Net Profit and Balance to be transfered to Retained Earnings:
| Sales | 30,00,000.00 |
| Net Profit (4.2% of 3000000) | 1,26,000.00 |
| Less: Dividend | 69,500.00 |
| Balance Trf. To Retained Earning | 56,500.00 |
Calculation of Closing Balance of Retained Earnings:
| Opening Balance of Retained Earnings | 2,20,200.00 |
| Add: Retained Earnings | 56,500.00 |
| Closing Balance | 2,76,700.00 |
Calculation of Closing Balance of Fixed Assets
| Opening Balane | 6,00,400.00 |
| Add: Additions | 90,400.00 |
| Less: Depriciation | -31,700.00 |
| Closing Balance | 6,59,100.00 |
| PRO FORMA BALANCE SHEET AS ON 31- 12-2020 for Leonard Industries | |||
| Assets | Amount (in $) | Liabilties & Shareholders' Equity | Amount |
| . | |||
| Cash (Desired Balance) | 49,800.00 | Accounts Payable (14.1% of Sales) | 4,23,000.00 |
| Marketable Securities | 14,900.00 | Accruals | 60,100.00 |
| Account Receivable (9.9% of Sales) | 2,97,000.00 | Other Current Liabilities | 30,400.00 |
| Inventories (11.6% of Sales) | 3,48,000.00 | ||
| Total Current Assets | 7,09,700.00 | Total Current Liabilties | 5,13,500.00 |
| Long Term Debt | 3,49,900.00 | ||
| Net Fixed Assets | 6,59,100.00 | ||
| Total Liabilties | 8,63,400.00 | ||
| Common Stock | 2,00,000.00 | ||
| Retained Earnings | 2,76,700.00 | ||
| Total stockholders' equity | 4,76,700.00 | ||
| External Funds Required (Balancing Figure) | 28,700.00 | ||
| Total Assets | 13,68,800.00 | Total Liabilties & Shareholders' Equity | 13,68,800.00 |
(b) Based on forecast and desired level of certain accounts, the financial manager should arrange credit of $ 28700 and If financing cannot be obtained one or more of the constraints must be changed. (Option D should be selected)
(c) In the given question as referred above, external financing of $ 28700 is required. Therefore if the dividend payment is reduced by $ 28700 i.e. from $ 69500 to $ 40800, there will not be any need for external borrowing. Further by reducing dividend more cash is retained by firm to cover growth in other asset accounts. (Option C should be selected)
