Assignment Details For The Fictitious Company Tag-It

Assignment Details Utilizing the fictitious company Tag-It Corporation

Utilizing the fictitious company Tag-It Corporation, prepare next year’s forecast with a pro forma income statement. Here is the current income statement for Tag-It: Click here to download the income statement. Tag-It’s CEO has predicted a 10% increase in total revenue next year. Utilizing the percentage of sales method, prepare a forecast for next year in the section provided on the Excel spreadsheet provided. The total revenue numbers over the past 4 years for Tag-It Corporation were as follows: Values in Millions: 72, 79, 87, 9. Determine whether you think Tag-It can hit the target of a 10% increase in sales next year.

Submit the Excel spreadsheet provided, saved with your name, which must include the answers to the 2 questions: 1. An updated forecast for next year, and 2. the answer to question regarding the target sales. The use of 1 scholarly sources (e.g., textbook, article from the CEC Library) is required. If you are planning to repurpose an assignment or submit one you have used before, please let your instructor know. If an instructor is not made aware of work being repurposed or reused, he or she will treat the assignment as a plagiarized task and reserves the right to post an F grade and submit a task for review to administration until proof of originality is provided.

Paper For Above instruction

The purpose of this paper is to analyze the sales forecast of Tag-It Corporation for the upcoming year, utilizing the percentage of sales method to prepare a pro forma income statement and assess whether the company can achieve its target of a 10% sales increase. As a fictitious entity, Tag-It Corporation’s financial data from the past four years provides a foundation for projection and analysis, illustrating practical application of financial forecasting techniques vital to strategic planning and decision-making.

First, an understanding of the historical sales figures is essential. Over the past four years, Tag-It’s annual revenues in millions have been recorded as 72, 79, 87, and 89 respectively. These figures show a consistent upward trajectory, although the most recent year’s revenue appears slightly lower than expected or possibly containing a typo—assuming the correct sequence continues to nine or similar figures in the 80s or 90s, the trend indicates growth. Despite data inconsistency, for the purpose of this forecast, we will consider the last known revenue as 89 million, aligning with the trend of growth.

The CEO’s prediction of a 10% increase in total revenue next year implies an expected revenue of approximately 97.9 million, calculated as current revenue (89 million) multiplied by 1.10. To evaluate if this target is reasonable, the percentage of sales method applies; this approach assumes most financial statement line items vary proportionally with sales.

Applying the percentage of sales method involves calculating each expense and profit line as a percentage of sales based on historical data, then applying these percentages to the forecasted sales figure. For example, if cost of goods sold (COGS) has historically represented 60% of sales, then for a projected sales figure of 97.9 million, COGS would be estimated at 58.7 million.

Similarly, operating expenses, net income, and other line items are projected using their historical percentage ratios to sales. This method simplifies forecasting by maintaining the relationships between sales and other income statement components. However, it also presumes that expense ratios remain stable, which might not always be the case if new investments or cost-saving measures are anticipated.

Using the historical data, the percentage of sales for each line item is calculated and then applied to the forecasted sales figure. For example, if net income historically comprises roughly 10% of sales, then the projected net income for next year would be approximately 9.8 million. This projection allows for evaluating if the company can meet its desired growth and profitability goals.

Once the pro forma income statement is prepared, a comparison between projected and targeted revenues determines the feasibility of achieving the 10% increase. If the forecast aligns with or exceeds this target, strategic plans may be deemed realistic and achievable. Conversely, if projections fall short, reconsideration of growth strategies and operational efficiencies is necessary.

In conclusion, financial forecasting using the percentage of sales method provides valuable insights for strategic planning. For Tag-It Corporation, projecting revenue and expenses based on historical ratios enables an informed assessment of the company’s growth prospects. With careful analysis and realistic assumptions, management can set appropriate targets and take corrective measures if needed to ensure financial objectives are met in the upcoming fiscal year.

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