Financial Forecasting

Problem 1:

From the following information relating FTZ Ltd. Prepare the proforma P&L
statement using percent of sales method for the next year. Assume that, the sales
for the next year will be 1020 and dividends would be 8.

Particulars Year 1 Year 2

Revenue from operations 800 890
Expenses:
Material 407 453
Employee benefits 203 227
Finance 10 11
Depreciation and Amortisation 50 64
Other 120 117
Total 790 872
Profit before exceptional items & other incomes 10 18
Exceptional items 8 10
Profit before extraordinary items & tax 18 28
Extraordinary items 0 0
Profit before tax 18 28
Tax 7 10
Profit or Loss for the period 11 18
Dividends 6 7
Retained Earnings 5 11
Solution:

Particulars Year Year Avg. percent Projected

1 2 of Sales Value or the
next year
Revenue from 800 890 100 1020
operations
Expenses:
Material 407 453 {(407+453)/(800+890)}*100 518.9760
=50.88 (0.5088*1020)
Employee benefits 203 227 (430/1690)*100 259.5200
=25.44
Finance 10 11 (21/1690)*100 126.4800
=1.24

Dr. G V Kesava Rao, B.Sc., MBA, PGDFM, LL.M.-Research, FDP-IIM A, CS, LIP-IBBI, Ph. D
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 Depreciation and 50 64 (114/1690)*100 80.9400
Amortisation = 6.74
Other 120 117 (2371690)*100 143.0040
=14.02
Total 790 872 (1662/1690)*100 1003.0680
98.34
Profit before 10 18 1.66 16.9320
exceptional items
& other incomes
Exceptional items 8 10 (18/1690)*100 10.8630
=1.065
Profit before 18 28 (46/1690)*100 27.7950
extraordinary =2.72
items & tax
Extraordinary 0 0 0 0
items
Profit before tax 18 28 2.72 27.7950
Tax 7 10 (17/46)*100 10.2702
=36.95
Profit or Loss for 11 18 1.71 17.5248
the period
Dividends 6 7
Retained Earnings 5 11

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Problem 2:

Rework the above problem assuming the following budgeted expenses:

Other-124, Depreciation and Amortisation-60, Finance-12, Dividends-8

Solution:

Particulars Year Year Avg. percent Projected

1 2 of Sales Value or the
next year
Revenue from 800 890 100 1020
operations
Expenses:
Material 407 453 {(407+453)/(800+890)}*100 518.9760
=50.88 (0.5088*1020)
Employee benefits 203 227 (430/1690)*100 259.5200
=25.44
Finance 10 11 Budgeted Expense 12
Depreciation and 50 64 Budgeted Expense 60
Amortisation
Other 120 117 Budgeted Expense 124
Total 790 872 - 974.4960
Profit before 10 18 - 45.5040
exceptional items
& other incomes
Exceptional items 8 10 (18/1690)*100 10.8630
=1.065
Profit before 18 28 - 56.3670
extraordinary
items & tax
Extraordinary 0 0 0 0
items
Profit before tax 18 28 - 56.3670
Tax 7 10 (17/46)*100 20.8276
=36.95
Profit or Loss for 11 18 - 35.5394
the period
Dividends 6 7 - 8
Retained Earnings 5 11 - 27.5394

Dr. G V Kesava Rao, B.Sc., MBA, PGDFM, LL.M.-Research, FDP-IIM A, CS, LIP-IBBI, Ph. D
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Problem 3:

The Balance sheet of FTZ Ltd. for previous years as follows:

Particulars Year 1 Year 2

Assets
Non-current Assets:
Property, plant & equipment 300 380
Non-current investments 20 20
Long-term loans and advances 15 14
Current Assets:
Inventories 173 192
Current investments 21 20
Trade receivables 180 200
Cash and cash equivalents 12 14
Short-term loans and advances 20 25
Total 741 865
Equity & Liabilities
Equity
Equity share capital (Par value Rs. 10) 150 150
Other equity 118 129
Non-current liabilities
Long-term borrowings 144 175
Long-term provisions 13 19
Short-term borrowings 10 180
Trade payables 126 167
Short-term provisions 40 45
Total 741 865
Take the data from Problem 1 i.e. sales will be 1020 in the next year. Assume that
the current and non-current investments would remain unchanged and, on the
equities, and liabilities assume that the share capital and long-term provisions
would remain unchanged. Other items in the balance sheet would change in
proportion to sales. The retained earnings may be taken from the proforma P&L
statement prepared in problem 2. Identify the EFR for the next year.

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 Particulars Year Year Avg. percent Projected
1 2 of Sales Value or the next
year
Sales 800 890 100 1020
Assets
Non-current Assets:
Property, plant & 300 380 {(300+380)/(800+890)}*100 410.4142
equipment = 40.23
Non-current investments 20 20 - 20
Long-term loans and 15 14 (39/1690)*100 23.5385
advances =23.08
Current Assets:
Inventories 173 192 (365/1690)*100 220.2959
= 21.60
Current investments 21 20 - 20
Trade receivables 180 200 (380/1690)*100 229.3491
= 22.46
Cash and cash equivalents 12 14 (26/1690)*100 15.6923
=1.54
Short-term loans and (45/1690)*100
advances 20 25 =2.66 27.1598
Total 741 865 966.4498

Equity & Liabilities

Equity
Equity share capital (Par 150 150 - 150
value Rs. 10)
Other equity 118 129 - 27.5394+129 =
156.5394
Non-current liabilities
Long-term borrowings 144 175 (319/1690)*100 192.5325
= 18.88
Long-term provisions 13 19 - 19
Short-term borrowings 10 180 (190/1690)*100 114.6746
= 11.24
Trade payables 126 167 (293/1690)*100 176.8402
= 17.34
Short-term provisions (85/1690)*100
40 45 = 5.03 51.3018
External Funds Required
262.1010
Total 741 865 966.4498

Dr. G V Kesava Rao, B.Sc., MBA, PGDFM, LL.M.-Research, FDP-IIM A, CS, LIP-IBBI, Ph. D
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Problem 4:

The balance sheet of Karthik Ltd. as on 31st March 2020 is as follows:

Liabilities Amount Assets Amount

Equity share capital 150 Property, plant & equipment 400
Other equity 180 Inventories 200
Term loans 80 Trade receivables 150
Short-term bank borrowings Cash
200 50
Trade payables 140
Provisions 50
800 800

The sales of the company for the year ending 31st March 2020 were 1000. It’s profit
margin on sales was 6% and its dividend pay-out ratio was 50% the tax rate was
30%. The company expects its sales to increase by 30%. The ratio of assets to sales
and spontaneous current liabilities to sales would remain unchanged. Likewise, the
profit margin ratio, the tax rate and the dividend pay-out ratio would remain
unchanged.

Estimate the external funds requirement for the year 2021.

Prepare the projected balance sheet and projected statement of profit and loss
assuming that the external funds requirement would be raised equally from term
loans and short-term bank borrowings.

Solution:

A= 800, L= 390, S= 1000, m= 6%, d= 50%, t= 30%, Increase in sales= 30%, S1= 1300

∆IM= 0, SR= 0

External Funds Requirement (EFR)

A L
= (∆S) − (∆S) − mS1 (1 − d) + (∆IM + SR)
S S
800 390
= (300) − (300) − 0.06 ∗ 1300(1 − 0.5) + (0 + 0)
1000 1000
[240 – 117] – (0.06*1300) (1-0.5) =123 -39 = 84

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 Proforma P&L Statement
Particulars Base Year Percentage Projected
Sale Revenue 1000 100 1300
Profit Before Tax 85.7143 111.4286
Tax @30% 25.7143 33.4286
Profit After Tax 60 6 78
Dividends @50% 30 39
Retained Earnings 30 39

Proforma Balance Sheet

Particulars Base Year Percentage Projected
Sale Revenue 1000 100 1300
Assets:
Property, plant & equipment 400 0.40 520
Inventories 200 0.20 260
Trade receivables 150 0.15 195
Cash 50 0.05 65
Total 1040
Equity share capital 150 - 150
Other equity 180 180+39 219
Term loans 80 80+72* 152
Short-term bank borrowings 200 200+72* 272
Trade payables 140 0.14 182
Provisions 50 0.05 65
Total 1040
* Half of External Funds Requirements i.e. 144

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