Problem: The Optimal Scam Company would like to see its sales grow at 20 percent for the foreseeable future. Its financial statements for the current year are presented below.
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Income Statement ($ millions)
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Balance Sheet ($ millions)
|
|
Sales
|
32.00
|
Current assets
|
16
|
|
Costs
|
28.97
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Fixed assets
|
16
|
|
Gross profit
|
3.03
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Total assets
|
32
|
|
Taxes
|
1.03
|
|
|
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Net income
|
2.00
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Current debt
|
10
|
|
|
|
Long-term debt
|
4
|
|
Dividends
|
1.40
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Total debt
|
14
|
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Retained earnings
|
0.60
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Common stock
|
14
|
|
|
|
Ret. earnings
|
4
|
|
|
|
Total liabilities and equity
|
32
|
The current financial policy of the Optimal Scam Company includes
• Dividend-payout ratio (d) = 70%
• Debt-to-equity ratio (L) = 77.78%
• Net profit margin (P) = 6.25%
• Assets-sales ratio (T) =1
Determine Optimal Scam's need for external funds next year.
Construct a pro forma balance sheet for Optimal Scam.
Calculate the sustainable growth rate for the Optimal Scam Company.
How can Optimal Scam change its financial policy to achieve its growth objective?