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The compan y requires you to advise them on the following: 1. Interview all the business heads, the finance team and get a sense of what ki nd of business projections they are looking at for the next three years 2. The company has a conservative management and wants to control the debt level s such that all unused cash has to first be applied towards repayment of short term debt. The ca sh has to be maintained at a minimum level as defined by the management. 3. The company at present has long term debt for which it has a systematic plan of repayment. 4. The company wants to maintain a dividend policy of 15% of the profits made du ring the current year, but the growth in the dividend should not be more than 20% of the dividend declared last year. 5. After having spoken with the finance honchos of the company, you have decided that the company should maintain a cash balance of Rs 55 Crores in the first projected ye ar, 65 crores in the second projected year and 90 crores in the third projected year. These projectio ns are based on the kind of working capital workings that you have done.
You have worked out a financial plan for the company after a running a simulatio n program based on the feedback that the various personnel provided you with. Projection recommendations for the next three years: (All amounts that are not p ercentage numbers are in crores)
Projected Year 1 Projected Year 2 Projected Year 3 Sales growth that can be projected over the previous year numbers 9.0% 11.5% 13.0% Cost of goods as a % of Sales 60.0% 57.6% 54.8% Selling, General Administration Expense as a % of sales 25.0% 27.0% 29.0% Capital Expenditure plan:
Plant & Machinery 78.0 125.0 145.0 Furniture 62.0 90.4 108.5 Loan repayment schedule
Projected Year 1 Projected Year 2 Projected Year 3 Short Term Debt repayment to take effect subject to the company maintaining a minimum cash level
Interest Expense On Short term Debt (on average outstanding of current year and previous year) 9.5% 9.5% 9.5% On Long term Debt (on average outstanding for two years) 7.0% 7.0% 7.0% Interest Income NIL NIL NIL Income Tax provision 25.0% 28.5% 30.0%
Accounts Receivable level to be maintained as days COGS 30.0 days 45.0 days 45.0 days Inventory level to be maintained in days cost of sales 28.5 days
32.4 days 35.1 days Accounts Payable level to be maintained as days COGS 30.0 days 40.0days 45.0days Other current assets ( as a % of sales) 1.2% 1.8% 2.0% Deferred Income Taxes NIL NIL NIL Other Current Liabilities NIL NIL NIL
Income Statement and Balance Sheet for the financial year just completed Income Statement: Amount in Rupees crores
1334.50 COGS
667.50
S G & A
373.30 Depreciation
(8.20) EBIT
227.20
Interest Income
203.50 Tax
130.90 Dividends
90.80
120.10 Inventories
904.30
Accounts Payable
202.10
527.40
Paid-in Capital
904.30
244.4 Net
275.6
Furniture
183.5 Net
209.6