The most recent income statement and balance sheet for the T. McGraw Corporation are as follows:
Income Statement
Sales: $10,000
-Costs: $7,500
Taxable Income: $2,500
- Taxes (34%): $850
Net Income: $1,650
Retained Earnings: $660
Dividends: $990
Balance Sheet
Current Assets: $5,000 Total Debt: $6,000
Fixed Assets: $10,000 Owner's Equity: $9,000
Total: $15,000 Total: $15,000
McGraw is forecasting a 20% increase in sales for the coming year; assets vary directly with sales, while liabilities and equity do not. Compute the following for McGraw
1. Profit Margin
2. Return on Equity
3. Use the ratios computed to calculate the external financing needed (EFN)