Process of Preparing A Financial Forecast
Order ID 53563633773 Type Essay Writer Level Masters Style APA Sources/References 4 Perfect Number of Pages to Order 5-10 Pages Description/Paper Instructions
Process of Preparing A Financial Forecast
You are the new financial manager of Northern Chemicals Ltd, a Kitale producer of specialized
chemicals for use in fruit orchards. You are in the process of preparing a financial forecast for 2022.
The company’s sales revenue for 2021 was $ 2 billion, and the marketing department is forecasting a 25% increase for 2022.
You think that the company was operating at full capacity in 2021 but you are not sure about this.
The interest rate on debt is 8%. The 2021 financial statements are shown below.
2021 Balance Sheet (in millions) % of Sales Cash and Securities $20 1% Accounts Receivable $240 12% Inventories $240 12% Total Current Assets $500 Net Fixed Assets $500 25% Total Assets $1,000 Accounts Payable and Accruals $100 5% Notes Payable $100
Total Current Liabilities $200 Long Term Debt $100 Common Stock $500 Retained Earnings $200 Total Liabilities and Equity $1,000 2021 Income Statement (in millions) % of Sales
Sales $2,000 Variable Costs $1,200 60% Fixed Costs $700 35% EBIT $100 Interest $16 EBT $84 Taxes (40%) $33.60 Net Income $50.40 Dividends (30%) $15.12
Additions to Retained Earnings $35.28
Required:
- a) Prepare a financial forecast for 2022 assuming that the company was operating at full capacity
in 2021. (10 marks)
- b) Assuming that in 2021, fixed assets had been operated at only 75% of capacity and that sales is
expected to increase to $3,000 million and not $2,500 million in 2022, calculate the fixed assets
requirement for 2022. Show all the workings. (10 marks)
RUBRIC
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