You are the head of a trucking accounting department. The chief executive officer has asked you to...

Question

You are the head of a trucking accounting department. The chief executive officer has asked you to prepare a financial report addressing long-term financial needs.

Examine financial information for trucking attached.

Read the New Strategic Directions Memo. Calculate external funds needed (EFN) to create the pro forma balance sheet. Calculate the following year-end ratios for the pro forma statements:

Profit as a percentage of sales
Current ratio
Asset ratio
Prepare a financial report containing the EFN calculation, the ratio calculations, and an explanation of how you reached the calculations. Explain which income statement and balance sheet items you assumed were variable instead of fixed.

005_5nfrbjo-2xjgqq1n.xls 005_qtjrbjo-t05pnrlk.xls 005_onjrbjo-u2orjv23.xls 005_3tjrbjo-qeglulfr.docx 005_hdnrbjo-vmgpa3rw.docx

Robert · Accepted Answer

Introduction 
Trucking Company is planning to expand its business by introducing new strategies and purchasing more 
trucks. For funding the expansion and acquisition of fixed assets, company needs additional fund.  These 
funds can be raised through a bank loan, financial instruments, shares etc. For calculating the amount of 
external funds needed by the company, pro forma income statement and pro forma balance sheet are 
prepared. 
Trucking Company - External Funds Needed 
Company is planning to invest in plant and machinery and expansion of the company’s 
operations. Most of the company’s trucks have become obsolete and thus company is planning 
to purchase new car. There will be an increase in fixed assets by $ 60,000. 
For preparing pro forma income statement and pro forma balance sheet, current year financial 
statements are used.  
For Pro-forma Balance sheet, we assume that fixed assets, current assets, current liability and 
long term debt changes in proportion to the sales.  
For Pro-forma Income statement, sales and expenses are increased in the ratio of increase in 
sales. 
Company has planned to invest $ 60,000 in fixed assets for which it needs additional fund of 
$3086.  The additional fund requirement is calculated on the basis of change in sale. Following 
equation is used to calculate external funds 
 (A*/S0)ΔS – (L*/S0)ΔS – MS1(RR) 
Where, A* = Assets tied directly to sales and will increase 
L* = Spontaneous liabilities that will be affected by sales. (NOTE: Not all liabilities will be affected by 
sales such as long-term debt) 
S0 = Sales during the last year 
S1 = Total sales projected for next year (the new level of sales). 
ΔS = The increase in sales between S0 and S1 
M = Profit margin,

You are the head of a trucking accounting department. The chief executive officer has asked you to prepare a financial report addressing long-term financial needs. Examine financial information for...

Solution

Answer To This Question Is Available To Download

Related Questions & Answers

Submit New Assignment