Years Sales Annual Growth Rate

2014 2058
2015 2534 ??
2016 2472 ??
2017 2850 ??
2018 3000 ??
Average Sales Growth Rate ??

Years Sales Annual Growth Rate

2014 2058
2015 2534 23%
2016 2472 -2.4%
2017 2850 15%
2018 3000 5.3%
Average Sales Growth Rate 10.3%

PRACTICE
Years Sales Annual Growth Rate
2014 1000
2015 1200 ??
2016 1100 ??
2017 1400 ??
2018 1750 ??
Average Sales Growth Rate ??

PRACTICE SOLUTION
Years Sales Annual Growth Rate
2014 1000
2015 1200 20%
2016 1100 -8.3%
2017 1400 27%
2018 1750 25.0%
Average Sales Growth Rate 16.0%
 Years Sales
2014 2058
2015 2534
2016 2472
2017 2850
2018 3000
Compounded Growth Rate ??

Years Sales
2014 2058
2015 2534
2016 2472
2017 2850
2018 3000
Compounded Growth Rate 1.099 (1+G)
2058(1+G)^4=3000 9.9%

PRACTICE
Years Sales
2014 1000
2015 1200
2016 1100
2017 1400
2018 1750
??
Compounded Growth Rate of Sales
??

PRACTICE SOLUTION
Years Sales
2014 1000
2015 1200
2016 1100
 2017 1400
2018 1750
1.150 (1+G)
Compounded Growth Rate of Sales
15.0%
 Years Sales
2014 2058
2015 2534
2016 2472
2017 2850
2018 3000
Growth Rate Calculated Through Regression 1.091036 (1+G)
EXCEL FORMULA -> LOGEST(SALES,YEARS) 9.1%
 AFN EXAMPLE

2018 (S0) 2019 (S1) CHANGE%

SALES 5,000,000 ??? 10%

2018 (S0) 2019 (S1) CHANGE%

SALES 5,000,000 5,500,000 10%
TOTAL ASSETS 3,500,000
TOTAL CURRENT LIABILITIES 700,000
ACCOUNTS PAYABLE 150,000 SPONTANEOUS
ACCRUED LIABILITIES 150,000 LIABILITIES
NOTES PAYABLE 400,000

AFTER TAX PROFIT MARGIN 5% M

RETENTION RATIO 30% RR

Funds from
Total funds needed to support Spontaneously retained earnings
expected increase in sales generated funds

The higher the

Capital Intensity capital intensity
Ratio What investment is ratio, the more
needed to support capital investment
1$ of new sales? is needed

A* $
S0 $
∆S $ (S1-S0)
L* $
M %
 S1 $
RR %
A*/S0 Ratio
L*/S0 Ratio

A* 3,500,000 All Assets

S0 5,000,000 2018 Sales
∆S 500,000 (S1-S0) = (5500,000-5000,000)
L* 300,000 AP+Accruals
M 5% Profit Margin
S1 5,500,000 Forcasted Sales for 2019 = S0(1+10%)
RR 30% Retention Rate

(A*/S0)X∆S 350,000
(L*/S0)X∆S 30,000
(M)(S1)(RR) 82,500
AFN 237,500
 AFN EXAMPLE

2018 (S0) 2019 (S1)

SALES 7,500,000 10,000,000
TOTAL ASSETS 6,000,000
TOTAL CURRENT LIABILITIES 1,800,000
ACCOUNTS PAYABLE 500,000 SPONTANEOUS
ACCRUED LIABILITIES 1,000,000 LIABILITIES
NOTES PAYABLE 500,000

AFTER TAX PROFIT MARGIN 8% M

RETENTION RATIO 25% RR

Funds from
Total funds needed to support Spontaneously retained earnings
expected increase in sales generated funds

Capital Intensity What investment is

Ratio needed to support
1$ of new sales?

A* $
S0 $
∆S $ (S1-S0)
L* $
M %
S1 $
RR %
A*/S0 Ratio
L*/S0 Ratio

A* 6,000,000 All Assets

S0 7,500,000 2018 Sales
∆S 2,500,000 (S1-S0) = (10,000,000-7,500,000)
L* 1,500,000 AP+Accruals
M 8% Profit Margin
S1 10,000,000 Forcasted Sales for 2019 = S0(1+33%)
RR 25% Retention Rate

(A*/S0)X∆S 2000000
(L*/S0)X∆S 500000
(M)(S1)(RR) 200,000
AFN 1,300,000
 CHANGE%
33%

The higher the capital

intensity ratio, the more
capital investment is
needed

= (10,000,000-7,500,000)

d Sales for 2019 = S0(1+33%)