29 Jan Create proforma income

Instructions:

Be sure your assignment includes the following details:

Part I:

Estimate the sales growth rate for the company for the next annual accounting period. Explain each step of your estimation process, similar to the process described in Higgins (2015).

Create proforma income statements and proforma balance sheets for your company for the next annual accounting period using the percent of sales method. Assume that all income accounts increase as a percent of sales, all asset accounts increase as a percent of sales, spontaneous liabilities increase as a percent of sales, and all financing accounts remain constant. The statements you create will be the initial round in order to determine external funding needed. Clearly identify what your statements indicate is the need for external funds for the next annual accounting period.

Part II:

Estimate the sustainable growth rate for your firm. Assume that all income accounts increase as a percent of sales, all asset accounts increase as a percent of sales, spontaneous liabilities increase as a percent of sales, and all financing accounts remain constant. Also assume that the company will pay the exact same dollar amount in dividends in the next annual accounting period that it paid during the most recent period. Be sure to describe all steps in the process and clearly indicate the growth rate (as a percentage) that you find.

Compare the sustainable growth rate you determined to the average annual growth rate in sales the company has had over the past 2 years. Is the average annual growth rate greater than or less than the sustainable growth rate? Assess this relationship.