Chris Middlebrooks
BUSG 528
5/2/2012
2. Pro forma financial statements are predictions of the future but they are based on the past. The past is a good indicator of the future and the trends of the past used as a foundation to estimate the future.
4.a. $100,000 ($80,000 * .5 + $120,000 * .5)
b. $75,000 ($80,000*.5 + 70,000*.5) I am not sure about the 45 day cycle. Would it only be half of the AR from August? So perhaps it would be $80,000*.5 + $70,000*.25=$57,500
c. - $100,000 ($80,000 * .5 + $120,000 * .5) It seems like this answer would be the identical equation to questions A because the other 50% that is not received in cash is in AR.
- $117,500 or $135,000($80,000 *.5 + $120,000 *.5 $70,000 * [.25 or .5]) I am having the same issue on this one that I had on B. How do you factor the 45 days? Would you factor half of the months beginning receivables?
6. net sales: C19+C19*C4
Equity: c37+d28
8. Based on the monthly cash budget there will be cash deficit in March. This would be an indicator to the treasurer that an investment would not be feasible at this point. Quite the contrary it appears that a bank loan will be required in order to keep the company in a positive cash position. If I were the treasurer of this organization I would forecast the cash position for the rest of the year and use that information to determine the correct amount of cash necessary to keep the company in a positive cash position at least through the year. This additional information would allow the company, as well as the banker, to react with the best information possible.
The company appears to have a cyclical nature and if that is the case the treasurer would do well to plan for this situation in the future. With the limited amount of information available my best guess is a seasonal business but the organization could have had a couple of big orders and the loan will be necessary to regulate the financial situation moving forward. The issue that I have with the purchasing is the purchases outpacing the sales in October and November culminating to a huge purchase month matching the highest sales month in December. This tells me that the purchasing may be able to be controlled better and inventory may be too high.
Cash Budget
Actual
Projected
October
November
December
January
February
March
I. Determination of Cash Collections and Payments
Projected sales $360,000
$420,000
$1,200,000
$600,000
$240,000
$240,000
collection of sales during month of sale
120,000
48,000
48,000 during 1st month after sale
960,000
480,000
192,000 total collections
$1,680,000
$768,000
$480,000
Purchases $510,000
$540,000
$1,200,000
$300,000
$120,000
$120,000
payments (prior months purchases)
$540,000
$1,200,000
$300,000
II. Cash receipts and disbursements
total cash receipts
$1,680,000
$768,000
$480,000 payments (from above)
$540,000
$1,200,000
$300,000 wages and salaries
$180,000
$180,000
$180,000 interest payments
$90,000 taxes
$180,000
principal payment on loan
$210,000 accumulated depreciation
$30,000 dividend payment
$300,000
Total cash disbursements
$720,000
$1,560,000
$1,110,000
Net cash receipts (disbursements)
$960,000
-$792,000
-$630,000
III. Determination of Cash Surplus or Deficit
Beginning cash
$30,000
$990,000
$198,000
Net cash receipts (disbursements)
$960,000
-$792,000
-$630,000
Ending cash
$990,000
$198,000
-$432,000
Minimum desired cash
$150,000
$150,000
$150,000
Cash surplus (deficit)
$840,000
$48,000
-$582,000 