Question: 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.
|
Income Statement ($ millions)
|
Balance Sheet ($ millions)
|
|
Sales
|
32.00
|
Current assets
|
16
|
|
Costs
|
28.97
|
Fixed assets
|
16
|
|
Gross profit
|
3.03
|
Total assets
|
32
|
|
Taxes
|
1.03
|
|
|
|
Net income
|
2.00
|
Current debt
|
10
|
|
|
|
Long-term debt
|
4
|
|
Dividends
|
1.40
|
Total debt
|
14
|
|
Retained earnings
|
0.60
|
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
Q1. Determine Optimal Scam's need for external funds next year.
Q2. Construct a pro forma balance sheet for Optimal Scam.
Q3. Calculate the sustainable growth rate for the Optimal Scam Company.
Q4. How can Optimal Scam change its financial policy to achieve its growth objective?