(Example 4-3) Starbucks Corp is forecasting 2014 near the end of 2013.The estima

Question

(Example 4-3) Starbucks Corp is forecasting 2014 near the end of 2013.The estimated year-end financial statements and a worksheet for the forecasts are shown below.

STARBUCKS CORP

PROJECTED INCOME STATEMENT

($000)

                                                                          2013                                       2014

                                                                $                              %                         $                              %

Revenue                                              $300,000        100.0                                       100.0

COGS                                                  $174,000           58.0                                                  

Gross Margin                                      $126,000           42.0

Expenses                                             $ 60,000            20.0

EBIT                                                    $ 66,000           22.0

Interest (10%)                                      $    6,600             2.2                                                  

EBT                                                    $ 59,400           19.8

Inc Tax (40%)                                     $ 23,670             7.9                                                  

EAT                                                    $ 35,640           11.9

STARBUCKS CORP

PROJECTED BALANCE SHEET

($000)

                        ASSETS                                               LIABILITIES & EQUITY

               20X1               20X2                                       20X1              20X2

C/A    $180,000                                             C/L      $ 85,000

F/A    $145,000                                             Debt                 $ 80,000

Total $325,000                                             Equity   $160,000                   

                                                                        Total                $325,000

     Management expects the following next year:

An 10% increase in revenue.

Price cutting will cause the cost ratio (COGS/Sales) to deteriorate (increase) by 1% of sales from its current level.

Expenses will increase at a rate that is one-half of that of sales.

C/A and C/L will increase proportionately with sales.

Projected interest payment is $6,759 in 2014

Net fixed assets will increase by $5 million.

All interest will be paid at 10%.

Federal and state income taxes will be paid at a combined rate of 40%.

     Make a forecast of Starbucks’ complete income statement and balance sheet. Work to the nearest thousand dollars.

Explanation / Answer

Starbucks Corp Projected Income Statement ($000) Particulars 2013 % 2014 % Revenue $3,00,000.00 100.00% $3,30,000.00 100.00% COGS $1,74,000.00 58.00% $1,77,300.00 53.72% Gross Margin $1,26,000.00 42.00% $1,52,700.00 46.28% Expenses $60,000.00 20.00% $63,000.00 19.09% EBIT $66,000.00 22.00% $89,700.00 27.18% Interest (10%) $6,600.00 2.20% $8,970.00 2.05% EBT $59,400.00 19.80% $80,730.00 25.13% Inc Tax (40%) $23,670.00 7.90% $32,292.00 10.05% EAT $35,640.00 11.90% $48,438.00 15.08% Starbucks Corp Projected Balance sheet ($000) Liabilities 2013 2014 Assets 2013 2014 Current Liabilities $85,000.00 $93,500.00 Current Assets $1,80,000.00 $1,98,000.00 Debt $80,000.00 $2,01,500.00 Fixed Assets $1,45,000.00 $5,00,000.00 Equity $1,60,000.00 $4,03,000.00 Total $3,25,000.00 $6,98,000.00 Total $3,25,000.00 $6,98,000.00

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