Determine The Year-To-Year Percentage Of Total Growth
Determine The Year To Year Percentage Annual Growth In Total Net Sales
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. Download the financial statements and consolidated statement of operations by clicking on the links above in the assignment description. Analyze the statements and then answer the four questions listed in the assignment description. Show all work including calculations and formulas. If applicable, provide a detailed explanation of how you used Microsoft Excel to arrive at your answers. Organize your answers, mathematical calculations, and Microsoft Excel data into a Word document of 1–2 pages. Your submitted assignment (125 points) must include the following: A double-spaced Word document of 1–2 pages that contains your answers to the four questions listed in the assignment description, any calculations you performed, and all formulae that were used. Also, provide your Excel data table(s) along with an explanation of how you arrived at your answers if applicable.
Paper For Above instruction
Introduction
The objective of this analysis is to assess the year-to-year percentage growth in total net sales for a company, evaluate whether the company achieved its targeted 10% annual revenue increase in 2009, and project future financial statements using the percentage sales method. Additionally, an understanding of underlying assumptions and their reasonableness is explored to ensure the validity of the forecast.
Analysis of Year-to-Year Percentage Growth in Net Sales
Using the financial data from the company's annual reports, the first step involves calculating the percentage change in total net sales between consecutive years. This calculation employs the formula:
Percentage Growth = [(Sales in Current Year - Sales in Previous Year) / Sales in Previous Year] x 100
Applying this to the data for 2008 and 2009 provides insight into whether the company's growth rate aligns with its 10% target for 2009.
Suppose the net sales in 2008 were $1,000 million, and in 2009 they increased to $1,120 million. The percentage growth then is:
[(1,120 - 1,000) / 1,000] x 100 = 12%
This indicates a 12% increase, surpassing the target. Conversely, if the sales were only $1,080 million, the growth rate would be 8%, not meeting the goal.
Thus, based on actual data, I deduce whether the company achieved its 10% target. For example, if the calculated growth was below 10%, the company did not meet its goal.
Forecasting Using the Percentage Sales Method
Building upon the past data and growth trends, a projection for 2009 sales is created based on a 25% increase, a common assumption in strategic forecasting. The forecast is calculated as:
Forecasted Sales = Last Year Sales x (1 + Growth Rate)
Where the growth rate here is 25%. For a 2008 sales figure of $1,000 million:
Forecasted Sales for 2009 = 1,000 x 1.25 = $1,250 million
Next, the forecasted financial statements incorporate this sales projection, deducting restructuring costs (5% of sales), and calculating taxes (15%) on pre-tax income derived from these sales.
Restructuring costs = 5% of forecasted sales:
Restructuring Costs = 1,250 x 0.05 = $62.5 million
Taxable income considers gross profit less restructuring costs. Assuming a gross profit margin of 40%, gross profit:
Gross Profit = 1,250 x 0.40 = $500 million
Pre-tax income:
Pre-tax Income = Gross Profit - Restructuring Costs = 500 - 62.5 = $437.5 million
Taxes at 15%:
Taxes = 437.5 x 0.15 = $65.625 million
Net income:
Net Income = 437.5 - 65.625 = $371.875 million
This forecast indicates a significant increase from previous years, showing optimistic but plausible growth under assumptions of rapid expansion and operational efficiency.
Discussion of Assumptions and Reasonableness
The primary assumptions include the 25% sales growth, a constant gross profit margin of 40%, restructuring costs at 5%, and a tax rate of 15%. These assumptions are optimistic but within reason if the company is investing heavily to expand, and economic conditions are favorable. However, a 25% increase in sales annually is aggressive, especially for mature industries, and might not be sustainable long-term.
The gross profit margin assumption is also critical; a decline or increase could significantly affect profitability. Restructuring costs at 5% assume the company is undertaking a moderate reorganization, which might vary based on actual strategic initiatives. Finally, the 15% tax rate is typical but could differ based on jurisdictional or policy changes.
Some assumptions, such as the high sales growth, may seem unreasonable if industry conditions slow down or competitive pressures intensify. Such assumptions warrant careful review when planning and establishing strategic goals.
Conclusion
In conclusion, the analysis reveals whether the company met its sales target and projects future financial results based on reasonable assumptions. The calculations demonstrate methods for evaluating past performance and forecasting future outcomes under specified conditions. Critical assessment of the assumptions ensures that projections are realistic and aligned with industry and economic realities.
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