Evaluate the financial statements of the company Pure Nature. Use the financial

Question

Evaluate the financial statements of the company Pure Nature.

Use the financial information of these states and further provided herein to prepare the

financial plan of the company for the year 20X7.

Consider the following data:

1) To. It is estimated that sales for 20X7 will be $ 6,000,000.

2) The cost of goods sold (COGS) in 20X6 includes $ 1,000,000 in fixed costs.

3) Operating expenses in the 20X6 include $ 250,000 in fixed costs.

4) Interest expense (interest expense) will remain unchanged.

5) Based on 40% of profits after tax dividends (net be paid

profits after taxes)

6) Cash (cash) and inventories (inventories) will double.

7) The marketable securities, notes payable, long-term debt and common stock,

they remain the same.

8) The accounts receivable, accounts payable and other current liabilities will change

directly related to the change in sales.

9) A new computer system worth $ 356,000 will be purchased during the year.

10) Depreciation expense for the year is $ 110,000.

11) The tax rate remains at 40%.

Instructions:

1. Prepare a statement of income and expenses pro fit for the year ending 20x7

using the method of percentage of sales.

2. Prepare a balance sheet pro forma as of 31 December 20X7 using the method

Administrative assumptions (judgmental approach).

3. Analyze the use of pro forma statements. Why they are performed? What is the role?

4. Analyzes states and discusses whether or not you need an external financing (external

financing). Give reasons for your answer.

*** IT IS VERY IMPORTAR TO COMPLETE THE ENTIRE EXERSICE ** INCLUDE ALL THE CALCULATIONS, THANK

Explanation / Answer

The balancing, or “plug,” figure used in the pro forma balance sheet prepared with the

judgmental approach is the amount of financing necessary to bring this statement into

balance. Sometimes an analyst wishing to estimate a firm’s long-term borrowing

requirement will forecast the balance sheet and let this “plug” figure represent the firm’s

estimated external funds required.

A positive external funds required figure means the firm must raise funds externally to meet

its operating needs. Once it determines whether to use debt or equity, its pro forma balance

sheet can be adjusted according to the financial strategy. A negative figure indicates that thwe

funds exceed the requirement (proportionate to sales and the asset-backing required).

Thus, Proforma statements are useful to the planners, in many ways such as for arranging funds,

for promotional purposes, etc. Mainly, proforma gives us the basic draft of the forecasted financial performance in

a very comprehensive manner.

Income Statement WORKINGS For the year ending December 31, 20x7 % of sales Plus F.C Sales revenue 6000000 100 Less: COGS 3100000 35 1000000 Gross Profit 2900000 45 Less: Operating expenses 970000 12 250000 Less: Depreciation 110000 N/P before Interest &Taxes 1820000 28 Less: Interest expenses 200000 4 N/P before Taxes 1620000 24 Less: Taxes @ 40% *NBT 648000 9.6 N/P after taxes 972000 14.4 Less: Cash dividends(20%)*NBT 324000 5.76 To Retained Earnings(40% )*NBT 648000 8.64

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