Tarheel Furniture Company is planning to establish a wholly owned subsidiary to manufacture upholstery fabrics. Tarheel expects to earn $1 million after taxes on the venture during the first year. The president of Tarheel wants to know what the subsidiary's balance sheet would look like. The president believes that it would be advisable to begin the new venture with ratios that are similar to the industry average. Tarheel plans to make all sales on credit. All calculations assume a 365-day year.
In your computations, you should round all numbers to the nearest $1,000.
Based upon the industry average financial ratios presented here, complete the projected balance sheet for Tarheel's upholstery subsidiary.
Industry Averages
Current ratio ........... 2:1
Quick ratio ........... 1:1
Net profit margin ratio ...... 5%
Average collection period ..... 20 days
Debt ratio ........... 40%
Total asset turnover ratio ...... 2 times
Current liabilities/stockholders' equity. 20%
