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For the first of your two companies as listed in Case 1, prepare pro-forma financial...

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Finance

For the first of your two companies as listed in Case 1, prepare pro-forma financial statements for next year. Consider the following assumptions and information:

Assume sales (Revenues) will increase by 25% next year.

Obtain and analyze the last 4-years annual financial statements. Based on your analysis of the last 4 years, form your assumptions for the forecast year.

What is your estimated external financing need (EFN) or surplus?

Does the assumed sales growth seem reasonable in light of growth in the last 3 years?

If there is an EFN, how do you propose the company raise the capital? If there is a surplus, what do you propose the company do with it?

Calculate the internal growth rate, IGR, using the textbook formula IGR = ROA x r, where r is the retention ratio (= 1 payout ratio). Recalculate the IGR using your pro-forma spreadsheet model and adjusting the growth rate in sales until your EFN = 0 approximately. Why do you think they differ

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