Online Bridge Program: Cash Flow Forecasting Butler Lumber Pro Formas
Generate a pro forma income statement for Butler Lumber using the percentage-of-sales percentage-of-sales method. Make projections without trade discounts (a) and with trade discounts (b). Use the following assumptions assumptions when performing your calculations:
a) Butler Lumber¶s 1991 1991 sales will be $3.6 $3.6 million, as estimated estimated in the case stud stud b) Other historical relationships within the financial statements that prevailed in 1990 will continue in 1991. Use the percen of-forecast-sales of-forecast-sales method to calculate values unless the value is otherwise known. c) Butler Lumber¶s average trade discount is 2 percent of purchase price. Assume if Butler Lumber takes advantage of discounts it does so starting April 1, 1991. d) Butler Lumber¶s Lumber¶s tax rate is 35 percent. percent. average principal balance outstanding e) Remember that interest is being paid at 10.50 percent and calculated on the during the year. Normally you would need to estimate this expense. For the t he sake of simplicity, assume 1991 interest expense is $40,000 if no discounts are taken and $53,000 if the discounts are taken.
f) Assume the current current portion of long-term long-term debt stays at the same level, level, i.e., $7,000. g) If Butler Lumber takes advantage advantage of trade discoun discounts, ts, the Accounts Payable balance balance at the end of 1991 will be $75,000. $75,000. h) Butler plans to obtain any additional additional financing it needs by increasing increasing its notes payable to the bank. bank. After you have completed and checked your work, you will generate the pro forma balance sheet. Butler Lumber Company Income Statement For the Years Ending December 31, 1988-1990 1988-1990 and Pro Forma Income Statement for 1991 (in thousands of dollars)
1988
Net sales
$
1,697
1989
$
2,013
1990
$
2,694
Cost of goods sold Beginning inventory Plus Purchases
183
239
326
1,278
1,524
2,042
% of
Projected
Projected
Sales
1991 (a)
1991 (b)
Online Bridge Program: Cash Flow Forecastin Butler Lumber Pro Formas Correct Answers: Butler Lumber Company Income Statement For the Years Ending December 31, 1988-1990 and Pro Forma Income Statement for 1991 (in thousands of dollars)
1988
Net sales
$
1989
1,697
$
1990
2,013
$
% of
Projected
Projected
Sales
1991 (a)
1991 (b)
2,694
$
3,600
$
3,600
Cost of goods sold Beginning inventory Plus Purchases $ Less Ending inventory Total cost of goods sold Gross profit
239
326
418
418
1,278
1,524
2,042
2,746
2,746
1,461
$ $
475
Less Interest expense
50
$
$
2,368 15.5% 72.4%
$
1,950
576
$
744
61
658 $
86
-
-
13
20
33
37
$
31
(a) No discounts (b) With discounts Online Bridge Program: Cash Flow Forecasting
41
$
7 $
34
$
418
1,437
515
6 $
$
-
Less Provision for income taxes Net income
$
425 $
1,763 326
1,222 $
Plus: 2% discounts Net income before taxes
$
239
Less Operating expenses Operating income
183
53 44
$
558
3,164 558
$
2,606
$
2,606
$
994
$
994
24.4%
878 $
115
878 $
115 41
40 $
9 $
3,164
75
53 $
26 $
49
103 36
$
67
Online Bridge Program: Cash Flow Forecasting Butler Lumber Pro Formas
Generate a pro forma balance sheet for Butler Lumber using the percentage-of-sales method. Make projections without tra discounts (a) and with trade discounts (b). Also calculate the size of the loan Butler Lumber will require with and without tra discounts. Use the following assumptions when performing your calculations:
a) Butler Lumber¶s 1991 sales will be $3.6 million, as estimated in the case study. b) Other historical relationships within the financial statements that prevailed in 1990 will continue in 1991. Use the percent-of-forec sales method to calculate values unless the value is otherwise known. c) Butler Lumber¶s average trade discount is 2 percent of purchase price. Assume if Butler Lumber takes advantage of discounts it does so starting April 1, 1991. d) Butler Lumber¶s tax rate is 35 percent. e) Remember that interest is being paid at 10.50 percent and calculated on the average principal balance outstanding during the year. Normally you would need to estimate this expense. For the sake of simplicity, assume 1991 interest expense is $40,000 if no discounts are taken and $53,000 if the discounts are taken.
f) Assume the current portion of long-term debt stays at the same level, i.e. $7,000. g) If Butler Lumber takes advantage of trade discounts, the Accounts Payable balance at the end of 1991 will be $75,0 h) Butler plans to obtain any additional financing it needs by increasing its notes payable to the bank. Butler Lumber Company Balance Sheet For the Years Ending December 31, 1988-1990 and Pro Forma Balance Sheet for 1991 (in thousands of dollars)
1988
Cash
$
Accounts receivable
Property (net)
58
$
171
Inventory Total current assets
1989
239 $
468 126
$
1990
49
$
41
222
317
325
418
596 140
$
776 157
% of
Projected
Projected
Sales
1991 (a)
1991 (b)
Online Bridge Program: Cash Flow Forecasting Butler Lumber Pro Formas Correct Answers: Butler Lumber Company Balance Sheet For the Years Ending December 31, 1988-1990 and Pro Forma Balance Sheet for 1991 (in thousands of dollars)
1988
Cash
$
58
Accounts receivable
239 $
468
Property (net) Total assets Notes payable, bank
49
Sales
1991 (a)
1991 (b)
41
1.5%
222
317
11.8%
424
424
325
418
15.5%
559
559
596
$
Projected
$
776
140
157
$
$ 5.8%
55
1,038
$
$
210
55
1,038 210
594
$
736
$
933
$
1,248
$
1,248
$
-
$
146
$
233
$
407
$
388
105
Accrued expenses
-
-
124
192
256
24
30
39
7
7
Current portion of long-term debt
7 $
260
Long-term debt
$
64 $
324
Net worth Total liabilities and shareholders' equity
1990
Projected
$
Accounts payable, trade
Total liabilities
$
126
Notes payable, Mr. Stark
Total current liabilities
$
171
Inventory Total current assets
1989
% of
594
$
535
57 $
270 $
375 432
736
$
585
$
without t
9.5%
342
342
1.4%
52
52
7
7
$
933
with di
t
808
$
43 $
348
Loan Amount Needed di
-
50
304 $
-
851
43 $
397 $
1,248
789 832 416
$
1,248