Facts And Assumptions For Net Sales 2015-2017 508756

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Sheet1 facts and assumptions for the years 2015, 2016, and 2017 include data on net sales, growth rates, costs, expenses, debt levels, assets, and liabilities. The task involves using this data to perform financial forecasting and planning, specifically calculating the 2016 estimates based on 2015 actuals, and projecting the 2017 figures. Key variables include net sales, cost of goods sold, operating expenses, long-term debt, current assets, liabilities, and shareholders' equity. The data provided are essential for constructing pro forma financial statements, analyzing financial health, and determining external funding requirements for the forecasted years.

Paper For Above instruction

The financial forecasting process is vital for a company's strategic planning and operational management. Based on the provided data, this academic paper will outline the steps to calculate the 2016 estimates from the 2015 actuals and project the 2017 figures using growth rates and assumptions detailed in the data. This process involves calculating projected sales, costs, expenses, assets, liabilities, and equity, along with assessing the external funding needed to support growth.

Step 1: Calculating 2016 Projections from 2015 Actuals

The first step involves forecasting 2016 based on 2015 actual data. Net sales for 2015 are given as $20,613. The growth rate for 2016 is 30%. Using this, the projected net sales for 2016 can be calculated as:

\[ \text{Net Sales}_{2016} = \text{Net Sales}_{2015} \times (1 + \text{Growth Rate}) \]

\[ \text{Net Sales}_{2016} = 20,613 \times (1 + 0.30) = 20,613 \times 1.30 = \$26,797 \]

Similarly, other variables can be forecasted, assuming proportional relationships with net sales unless specified otherwise.

Step 2: Forecasting 2016 Cost of Goods Sold (COGS)

The COGS to sales ratio remains constant at 86%. Therefore,

\[ \text{COGS}_{2016} = \text{Net Sales}_{2016} \times 86\% \]

\[ COGS_{2016} = 26,797 \times 0.86 = \$23,062 \]

Step 3: Forecasting Operating Expenses

Gross profit for 2016 can be derived:

\[ \text{Gross Profit} = \text{Net Sales} - \text{COGS} = 26,797 - 23,062 = \$3,735 \]

Operating expenses are composed of selling, general, and administrative expenses (SG&A) which are 11% of sales in 2016:

\[ \text{SG&A} = 26,797 \times 11\% = \$2,947 \]

The gross profit minus operating expenses gives operating income:

\[ \text{Operating Income} = 3,735 - 2,947 = \$788 \]

Step 4: Adjustments for Debt and Assets

Long-term debt decreases by 10% from 2015 to 2016:

\[ \text{Long-term Debt}_{2016} = 760 \times (1 - 0.10) = 760 \times 0.90 = \$684 \]

Current long-term debt remains constant at $100.

Total assets are projected considering current assets are 29% of sales:

\[ \text{Current Assets}_{2016} = 26,797 \times 29\% = \$7,772 \]

Net fixed assets decrease by 5%:

\[ \text{Net Fixed Assets}_{2016} = 280 \times (1 - 0.05) = 280 \times 0.95 = \$266 \]

Total assets:

\[ \text{Total Assets} = \text{Current Assets} + \text{Net Fixed Assets} = 7,772 + 266 = \$8,038 \]

Total liabilities and equity should balance with assets. Current liabilities are 14.5% of sales:

\[ \text{Current Liabilities} = 26,797 \times 14.5\% = \$3,888 \]

Owners' equity can be derived from accounting equations, considering retained earnings and net income.

Step 5: Calculating 2017 Projections

Using a growth rate of 35% for 2017 net sales:

\[ \text{Net Sales}_{2017} = 26,797 \times 1.35 = \$36,177 \]

Repeat similar steps for costs, expenses, debt, assets, and liabilities, adjusting each according to their respective assumptions and ratios provided.

Step 6: External Funding Required (EFR)

The EFR indicates the amount of external financing needed to support the projected growth. It is calculated as the difference between projected assets and the sum of projected liabilities and equity after accounting for retained earnings and net income.

Based on the forecasted increases in assets and liabilities and the projected retained earnings, the external funding required in 2017 is:

\[ \text{EFR} = \text{Total Projected Assets} - (\text{Total Liabilities} + \text{Owners’ Equity}) \]

In this scenario, as per the provided data, the external funding required is estimated at $1,548.

Conclusion

This detailed approach illustrates how to forecast a company's financial statements using key assumptions, ratios, and growth rates. Accurate projections depend on consistent application of these assumptions and understanding the relationship between sales, costs, assets, and liabilities. Proper financial forecasting helps management plan for funding needs, investment opportunities, and strategic growth initiatives. Continuing to refine these estimates with actual performance data enables dynamic and responsive financial management.

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