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Week 3 - Pro Forma Statements
The Landis Corporation
Sales $100,000,000
Dividend Payout Rate 42%
Balance in Retained Earnings $35,000,000
Common Stock $10,000,000
Long-Term Bonds $5,000,000
Notes Payable $12,000,000
The BALANCE SHEET items that vary directly with sales and the profit margin
Are as follows:
Cash 6%
Accounts Receivable 16%
Inventory 24%
Net Fixed Assets 40%
Accounts Payable 13%
Accruals 11%
Profit Margin after Taxes 6%
a. How much additional external capital will be required for next year if sales
Increase 15%? (Assume that the company is already running at full capacity).
b. What will happen to external fund requirements if Landis reduces the payout
Ratio, grows at a slower rate, or suffers a decline in its profit margin?
Discuss each of these separately.
c. Prepare a pro forma balance sheet for 2009 assuming that any external funds
Being acquired will be in the form of Notes Payable. Disregard the information
In part B. in answering this question. Use the information in part A. to
Develop your pro forma.
Hint: the assets and liabilities/equity should be the same number.
Notes payable will be the original notes payable plus the calculated required new funds
Retained earnings will be the balance in retained earnings plus PS2(1-D)
