Current profit margin and pro forma profit margin

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Reference no: EM131880939

You have just completed the first year of operation for your business and have the following information: sales, $200,000; cost of goods, $140,000; rent, $18,000; utilities, $8,400; insurance, $2,000; equipment, $3,500; interest, $10,000. Your forecast indicates that your sales will increase by 20 percent. Your rental agreement provides for a 3 percent increase per year. You read an article indicating that utility costs in your area will increase by 10 percent next year. You just received a notice from your insurance company stating that your quarterly premium is increasing to $600 beginning the first quarter of next year. Your equipment expense will not change, but the amortization schedule on your current loan indicates that interest expense for next year should be $9,000.

a. Using this data, construct an actual income statement for this year and a pro forma income statement for next year.

b. By what percentage did your net income change?

c. What are your current profit margin and your pro forma profit margin?

d. In your business, assets and liabilities have historically varied with sales. Assets are usually 80 percent of sales, and liabilities are usually 55 percent of sales. You anticipate that you will have no owner payout of net profit. Using the percentage of sales method, determine if any additional financing is needed for your business next year.

Reference no: EM131880939

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