Companies often use ratios as a basis for planning. The technique is to assume t
ID: 2818707 • Letter: C
Question
Companies often use ratios as a basis for planning. The technique is to assume the business being planned will acheive targeted levels of certain ratios and then calculate the financial statement amounts that will result in those ratios. The process always starts with a dollar assumption about sales revenue. Forcast the balance sheet for Lambert Co., using the following projected information ($000). Round all projections to the nearest 1,000 dollars.
Sales $10,000
Cash $500
Accruals $50
Gross Margin 45%
ACP 42 days
Inventory turns (Based on COGS) 7.0
Total Asset Turnover 1.25
Current Ratio 2.0
Debt:Equity 1:3
ASSETS: LIABILITIES:
Cash ____ A/P _____
AR _____ Accruals ______
Inventory _____ C/L ______
C/A _____ Debt _______
Net F/A ____ Equity _______
Total Assets _____ Total L&E ______
Explanation / Answer
Sales 10000 Cash 500 Accruals 50 Gross Margin 45% COGS 5500 ACP 42 Account Receivable 1151 Inventory turns (Based on COGS) 7 Inventory 786 Total Asset Turnover 1.25 Total Assets 8000 Current Ratio 2 Debt:Equity 0.333333 Current Liability 1218.2 Cash 500 Account payable 1168 Account Receivable 1151 Accruals 50 Inventory 786 Current Liabilities 1218 Current Assets 2436 Debt 1695 Fixed Assets 5564 Equity 5086 Total Assets 8000 Total Liability & Equity 8000
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