Percentage of sales method, Finance Basics

Percentage of Sales Method

A) Express the various balance sheet items varying along with sales as percentage of sales as assume for year 2002 stock and net fixed assets amount for Sh.12M and 18M respectively sales amount to Sh.40M.  Consequently stock as percentage of sales"

Stock = (12m/40m) * 100 = 30%                   

Fixed assets = (18m/ 40m) = 45%

B) Determine the increase in net asset as results of increase in sales like suppose sales increases from Sh.40 M to Sh.60 M in year 2003. The additional total fixed asset and stock required would be determined as follows:

Increase in stock = % of sales x increase in sales

                            = 30% (60 - 40) = Sh.6M

Increase in fixed asset = % of sales x increase in sales

                                     = 45%(60 - 40) = Sh.9 M

C) Determine the net increase in assets that will be financed via:

a)  Spontaneous source of finance i.e increase in current liabilities

     Where Increase = % of sales x increase in sales

b)  Retained earnings for the forecasting period

     Retained earnings = Net profit - Dividend paid

      Net profit margin =     Net profit/Sales

Thus: Net profit = Net profit margin (%) x sales

Note

Usually Net profit margin is called after tax return on sales.

  • Out of the net assets that are necessary as a result of increase in sales, the financing will come from the two (2) sources recognized. Any type of amount such cannot be met from the two sources will be borrowed externally at short term basis that will be a current liability.
Posted Date: 1/30/2013 2:35:07 AM | Location : United States







Related Discussions:- Percentage of sales method, Assignment Help, Ask Question on Percentage of sales method, Get Answer, Expert's Help, Percentage of sales method Discussions

Write discussion on Percentage of sales method
Your posts are moderated
Related Questions
Goals of firm's Credit Standards The goal of the firm's credit policy is to maximize the value of such firm. To complete this goal, the evaluation of investment in receivables

Contracting Cost - Agency Costs These are costs acquired in devising the contract between the shareholders and managers. The contract is drawn to ensure management act in t

How quickly could something like this be done? And how confidential is this? Has any student ever been caught using this service?

1. Using the variance-covariance matrix (∑) and the expected return vector (er) given in the appendix, calculate the set of weights that correspond to the portfolio that maximizes

What do you mean listing of securities? Explain. Listing of Securities: Listing means admission of the securities to dealings on a recognized stock exchange. Securities of an

The operating and cost data of ABC Ltd. are: Sales Rs. 20,00,000 Vari

Term Structure of Interest Rates The term structure of interest rate give details the relationship between the term to maturity and interest rates and the differences between

Sapp Trucking's balance sheet shows a total of noncallable $45 million long-term debt with a coupon rate of 7.00% and a yield to maturity of 6.00%. This debt currently has a marke

FASB Assignment

Bill Smith, a manager of a restaurant/bar in Los Angele, is in the 25% marginal tax bracket and pays additional 5% in taxes to the state of California. Bill has 20,000 invested in