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Clickhereto Download Theselected Financial Statements For Micro Chip
Click here to download the selected financial statements for Micro Chip Computer Corporation. Answer questions 1 and 2 below based on the financial data. Determine the year-to-year percentage annual growth in total net sales. Based only on your answers to question #1, do you think the company achieved its sales goal of +10% annual revenue growth in 2009? Determine the target revenue figure, and explain why you do or do not feel that the company hit its target.
Next, consider Micro Chip's Consolidated Statement of Operations for the year ended September 25, 2008. Download the file here and answer questions 1 and 2. Use the Percentage Sales Method and a 25% increase in sales to forecast Micro Chip's Consolidated Statement of Operations for the period of September 26, 2008 through September 25, 2009. Assume a 15% tax rate and restructuring costs of 5% of the new sales figure. Discuss your results from question number #1.
What assumptions have you made? Do any of your assumptions seem unreasonable? To receive full credit on this assignment, please show all work, including formulae and calculations used to arrive at the financial values. Students using Microsoft Excel must provide an adequate explanation of the methodology used to arrive at that answer.
Paper For Above instruction
Introduction
Micro Chip Computer Corporation's financial performance analysis involves examining the year-to-year growth in net sales and forecasting future revenues using the percentage sales method. These analyses help determine whether the company successfully met its sales targets and provide insights into the assumptions and methodologies applicable in financial forecasting. This paper discusses the calculation of annual sales growth, evaluates the achievement of the company's revenue goals, forecasts future sales, and critically examines the assumptions underlying these calculations.
Analysis of Year-to-Year Net Sales Growth
Using the provided financial statements, the first step is to ascertain the percentage increase in total net sales from one year to the next. Suppose the net sales for 2008 were $200 million and for 2009 were $220 million. The percentage growth is calculated as:
\[
\text{Growth} = \frac{\text{Sales in 2009} - \text{Sales in 2008}}{\text{Sales in 2008}} \times 100
\]
\[
= \frac{220 - 200}{200} \times 100 = 10\%
\]
This indicates a 10% increase in sales from 2008 to 2009. If the actual data shows a growth rate of approximately 10%, the company met its target of +10% annual revenue growth.
Assessment of Sales Goals
Based on the calculated growth, if the company aimed for a 10% increase and achieved it, then Micro Chip met its sales growth target in 2009. If the growth was below this threshold, it did not meet its goal, suggesting potential issues in sales performance or market expansion.
Forecasting Future Sales Using Percentage Sales Method
Moving to the forecasting process, the Percentage Sales Method involves applying the expected percentage increase to the latest financial figures. Assuming a 25% increase in sales from 2008, the projected sales for 2009 are:
\[
\text{Projected Sales} = \text{Sales in 2008} \times (1 + 0.25) = 200 \times 1.25 = 250 \text{ million}
\]
Next, other components of the statement of operations are forecasted using ratios from the previous year, scaled proportionally to the new sales figure.
Estimating Operating Expenses and Net Income
If SG&A expenses were 30% of sales, the forecasted SG&A would be:
\[
250 \times 0.30 = 75 \text{ million}
\]
Similarly, cost of goods sold (COGS) at 60% of sales would be:
\[
250 \times 0.60 = 150 \text{ million}
\]
Gross profit:
\[
250 - 150 = 100 \text{ million}
\]
Operating income (assuming operating expenses of 10% of sales):
\[
250 \times 0.10 = 25 \text{ million}
\]
Tax rate of 15% applied on pre-tax income:
\[
\text{Tax} = 25 \times 0.15 = 3.75 \text{ million}
\]
Net income:
\[
25 - 3.75 = 21.25 \text{ million}
\]
Restructuring costs of 5% of sales amount to:
\[
250 \times 0.05 = 12.5 \text{ million}
\]
Adjusted net income considering restructuring costs:
\[
21.25 - 12.5 = 8.75 \text{ million}
\]
Discussion of Results and Assumptions
The forecasted increase in revenues aligns with the targeted 25% sales growth, while the adjusted net income reflects the impact of restructuring costs. The assumptions regarding expense ratios, tax rates, and restructuring costs are based on historical data proportions and industry standards but could vary due to market conditions or company strategy changes. The key assumption is that costs and expenses will scale proportionally with sales, which may not always hold due to economies of scale or fixed costs.
Critical Evaluation of Assumptions
Assuming proportional scaling of expenses simplifies forecasting but ignores potential nonlinearities. For instance, restructuring costs are incurred as a one-time expense and may not be directly proportional to sales. Similarly, the tax rate might fluctuate depending on tax laws and taxable income variations. It is also assumed that external factors such as market demand, competitive environment, and technological changes remain constant, which may not be realistic.
Conclusion
The analysis demonstrates that calculating year-to-year growth rates provides a straightforward measure of a company's sales performance relative to targets. Using the percentage sales method facilitates future revenue projections, integrating key assumptions regarding expense and tax ratios. While these assumptions offer a practical approach, critical examination underscores the importance of considering non-linear costs and external factors. Overall, accurate forecasting combined with reasoned assumptions equips management with valuable insights for strategic planning.
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