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After-Class Exercise for the Preparation of Pro Forma Financial Statements You are a financial analyst covering the

stock of New Age Sporting Goods Inc. (NASG), a retailer of sporting goods operating in the northeast region. ne of your clients, a large institutional investor fro! Asia, has recently re"uested a detailed invest!ent report a#out NASG. In the re"uest, this client specifically asked that the report include the pro for!a financial state!ents for the year $%&$. 'elow are the actual inco!e state!ent and #alance sheet for New Age Sporting Goods Inc. (NASG) for the year $%&&. Income Statement for the Year 2011 (In thousands) Sales (evenue -.penses/ 0ost of Goods Sold 3arketing and Ad!inistrative Interest Inco!e 5a.es 5otal -.penses Net Inco!e Balance Sheet as of the End of Year 2011 (In thousands) 0ash Accounts (eceiva#le Inventories 6repay!ents 5otal 0urrent Assets 6roperty, 6lant, and -"uip!ent (net) ther Assets 5otal Assets Accounts 6aya#le Notes 6aya#le ther 0urrent 8ia#ilities 5otal 0urrent 8ia#ilities 8ong9ter! :e#t ther Noncurrent 8ia#ilities 5otal 8ia#ilities 0o!!on Stock Additional 6aid9in 0apital (etained -arnings 5otal Shareholders; -"uity 5otal 8ia#ilities and S1

)*+,,&$ 12,2*1 &$,*2* 4%1 &,2*& *%,4+& )$,1*&

),2 4%% &,,%1, 2$7 &2,++* &2,*4, &,1%4 )+$,*&7 )2,7%4 &,**$ $,&*, 7,74+ 7,4%7 ,&& )$%,%7+ $+% 2+7 &&,724 &$,4$1 )+$,*&7

'ased on your thorough research on the #usiness of NASG and its operating environ!ent, you have set up the following assu!ptions a#out NASG<s operation, invest!ent, financing, and other activities for the year $%&$. &. $. +. ,. 2. 1. Sales will grow $$= 0ost of goods sold will e"ual 4*.1= of sales Selling and ad!inistrative e.penses will e"ual &2.2= of sales Interest e.pense will e"ual 4= of average interest9#earing de#t Inco!e ta. e.pense will e"ual +4= of inco!e #efore inco!e ta.es 0ash will e"ual the a!ount necessary to e"uate total assets with total lia#ilities plus shareholders; e"uity 4. Accounts receiva#le will increase at the growth rate in sales *. Inventory will turn over 2.$ ti!es per year 7. 6repay!ents will increase at the growth rate in sales &%. 6lant assets (net) will grow at &*.7= per year &&. ther assets will increase at the growth rate in sales &$. Accounts paya#le will turn over &+.% ti!es per year &+. Notes paya#le will increase to )$,%%% !illion in the year $%&$ and thereafter increase )&%% !illion each year &,. ther current lia#ilities will grow at the growth rate in sales &2. 8ong9ter! de#t will grow at the growth rate in property, plant, and e"uip!ent &1. ther non9current lia#ilities will increase at the growth rate in sales &4. 0o!!on stock and additional paid9in capital will not change &*. :ividends for the year $%&& were )+7& and will increase at a $2= growth rate &7. :epreciation e.pense for the year $%&& was )1,7 and will increase at the growth rate in property, plant, and e"uip!ent $%. 5he change in ther Noncurrent Assets is an investing activity $&. 5he change in ther Noncurrent 8ia#ilities is an operating activity. Re !irement" (&) 6repare a pro for!a inco!e state!ent, #alance sheet, and state!ent of cash flows for NASG for the year $%&$. ($) After you have prepared the pro for!a state!ent of cash flows, do you see the need to revise so!e of the assu!ptions you have !ade> ?hich assu!ptions> -.plain your decision.

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