E11-21. Analyze, Forecast, and Interpret Income Statement and Balance Sheet Following are the income statement and balance sheet of ADP Inc. Total revenues. Operating expenses.. Systems development and programming costs Depreciation and amortization Total cost of revenues Selling, general, and administrative expenses. Interest expense.. Current liabilities Total expenses.. Other (income) expense, net $ millions Current assets Cash and cash equivalents. Accounts receivable, net. Other current assets. Earnings before income taxes Provision for income taxes. Net earnings.. Total current assets before funds held for clients Funds held for clients Total current assets Long-term receivables, net. Property, plant and equipment, net Capitalized contract cost, net. Other assets. Goodwill Intangible assets, net Total assets AUTOMATIC DATA PROCESSING INC. Balance Sheet AUTOMATIC DATA PROCESSING INC. Statement of Consolidated Earnings For Year Ended June 30, 2019, $ millions Accounts payable Accrued expenses and other current liabilities Accrued payroll and payroll-related expenses Dividends payable. Short-term deferred revenues. Obligations under reverse repurchase agreements Income taxes payable. Total current liabilities before client funds obligations. Client funds obligations.. Total current liabilities.. Long-term debt. Other liabilities Deferred income taxes. Long-term deferred revenues. Total liabilities.. $ millions Shareholders' equity Preferred stock, $1.00 par value: Authorized, 0.3 shares; issued, none Common stock, $0.10 par value: Authorized, 1,000.0 shares; issued, 638.7 shares; outstanding 434.2 shares Capital in excess of par value. Retained earnings .. Treasury stock, at cost: 204.5 shares. Accumulated other comprehensive loss. Total stockholders' equity.. Total liabilities and stockholders' equity.. . June 30, 2019 $ 1,949.2 2,439.3 519.6 4,908.1 29,434.2 34,342.3 23.8 764.2 2,428.5 934.4 2,323.0 1,071.5 $41,887.7 $ 125.5 1,759.0 721.1 340.1 220.7 262.0 54.8 3,483.2 29,144.5 32,627.7 2,002.2 798.7 659.9 399.3 36,487.8 June 30, 2019 63.9 1,183.2 17,500.6 (13,090.5) (257.3) 5,399.9 $41,887.7 $14,175.2 7,145.9 636.3 304.4 8,086.6 3,064.2 129.9 11,280.7 (111.1) 3,005.6 712.8 $ 2,292.8 a. Forecast ADP's 2020 income statement and balance sheet using the following relations ($ millions). Assume total revenues grow by 13% in 2020. All other percentages (other than sales growth and provision for income taxes) are based on historic percent of total revenues. CAPEX for 2020 will be 1.1% of total revenue, and depreciation will be $184.4 million. Goodwill, long-term debt, preferred stock, common stock, and Accumulated other comprehensive loss will not change for the year. The company will acquire intangibles equal to 2.9% of total revenues and will record amortization expense of $276.1 million. Income taxes will be 25% of pretax income and income taxes payable will be 7.7% of 2020 tax expense. The company will award $167.3 million of stock-based compensation, which increases Capital in excess of par value by the same amount. Assume that the company routinely includes this form of compensation in operating expenses each year. The company will continue its stock repurchases. ADP will repurchase $750 million of treasury stock. Dividends will be $1,389.4 in 2020, and dividends payable will be 26.3% of dividends. b. What does the forecasted adjustment to balance the accounting equation from parta reveal to us about the forecasted cash balance and related financing needs of the company? Explain.
