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Microsoft Word - Case Study 3 Ch4 SS Air CASE STUDY 3 Planning for Growth at S&S Air After Chris completed the ratio analysis for S&S Air, Mark and Todd approached him about planning for next year's...

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Microsoft Word - Case Study 3 Ch4 SS Ai
CASE STUDY 3
Planning for Growth at S&S Air
After Chris completed the ratio analysis for S&S Air, Mark and Todd approached him about
planning for next year's sales. The company had historically used little planning for investment
needs. As a result, the company experienced some challenging times because of cash flow
problems. The lack of planning resulted in missed sales, as well as periods when Mark and Todd
were unable to draw salaries. To this end, they would like Chris to prepare a financial plan for
the next year so the company can begin to address any outside investment requirements. The
income statement and balance sheet are shown here:
S&S AIR, INC.
2019 Income Statement
Sales $40,259,230
Cost of goods sold XXXXXXXXXX,336,446
Other expenses XXXXXXXXXX,105,100
Depreciation XXXXXXXXXX,804,220
EBIT $ 4,013,464
Interest XXXXXXXXXX,520
Taxable income $ 3,382,944
Taxes (40% XXXXXXXXXX,353,178
Net income $ 2,029,766
Dividends $ 610,000
Add to retained earnings XXXXXXXXXX,419,766

S&S AIR, INC.
2019 Balance Sheet
Assets Liabilities and Equity
Cu
ent assets Cu
ent liabilities
Cash $ XXXXXXXXXX,435 Accounts payable $ XXXXXXXXXX,005
Accounts receivable XXXXXXXXXX, XXXXXXXXXXNotes payable 2,121,350
Inventory 1,073, XXXXXXXXXXTotal cu
ent liabilities $ 3,050,355
Total cu
ent assets $ 2,262,740
Long-term debt $ 5,500,000

Fixed assets Shareholder equity
Net plant and equipment $17,723,430 Common stock $ XXXXXXXXXX,000
Retained earnings 11,035,815
XXXXXXXXXXTotal equity $11,435,815
Total assets $19,986,170 Total liabilities and equity $19,986,170


QUESTIONS
1. S&S Air is planning for a growth rate of 12 percent next year. Help Chris to prepare the pro
forma income statement and pro forma balance sheet, and calculate the external financing
equired for the company assuming the company is operating at full capacity.

2. Can you identify some possible problems in the pro forma financial statement you prepared?

Pro Forma Income Statement
    Pro Forma Income Statement
    Sales
    Cost of goods sold    ()
    Other expenses    ()
    Depreciation    ()
    EBIT
    Interest     ()
    EBT
    Taxes (40%)
    Net Income
    Dividends    ()
    Addition to retained earnings
Pro Forma Balance Sheet
    Pro Forma Balance Sheet
    Cash                Accounts payable
    Accounts receivable                Note payable
    Inventory                Cu
ent liabilities
    Cu
ent assets
                    Long-term debt
    Net fixed assets                Common stock
                    Retained earnings
                    Total equity
                    External financing required
    Total assets                Total liability and equity
Answered 2 days After Mar 02, 2022

Solution

Khushboo answered on Mar 04 2022
121 Votes
Pro Forma Income Statement
    Pro Forma Income Statement
    Sales    (40259230*1.12)    $45,090,338
    Cost of goods sold    (29336446*1.12)    32856819.52
    Other expenses    ()    $5,105,100
    Depreciation    ()    $1,804,220
    EBIT        $5,324,198
    Interest     ()    $630,520
    EBT        $4,693,678
    Taxes (40%)        $1,877,471
    Net Income        $2,816,207
    Dividends    ()    $846,347
    Addition to retained earnings        $1,969,860
    Assumptions:
    There is no increase in other expenses and depreciation as these are...
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