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Financial Planning and Analysis

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Financial Analysis

20X1 20X2 20X3 20X4 20X5

Return on Sales

(Net Profit Margin) 0.028 0.028 0.028 0.028 0.28

Return on Equity 0.083 0.143 0.222 0.308 0.381

Average Collection Period

(Days Sales Outstanding) 30 30 30 30 30

Inventory Turnover 6 6 6 6 6

Current Ratio 3.333 1.9 1.542 1.34 1.28

Quick Ratio 1.333 0.7 0.542 0.459 0.434

Debt to Equity 0.25 0.714 1.889 2.769 3.29

Fixed Asset Turnover 8 16 9.931 11.755 16.696

Financial Planning and Analysis

Based on the information provided for year 20X1 to 20X4, the trend and patterns arise as follow: the cash and miscellaneous assets were consistent, the account receivable and inventory doubled every year. The fixed assets increased by 1 million from year 20X3 to year 20X4 thus i estimate that it will also increase by 1 million in the following year 20X5. This is quite reasonable since the total assets increased around 46% to 62% between 20X1 and 20X4. The total assets of $18,000,000 in year 20X5 is a 54% increase from previous year which is exactly between that range thus the figure can be consider valid.

The notes payable from year 20X3 to 20X4 has also been consistent so I estimate that year 20X5 note payable will be $900,000 just like previous two years. The account payable forecast is $10,800,000 which is approximately 44% increase from previous year. The increase in account payable every year is due to the growth of the company; this short-term debt payments to the banks and supplies is a result mainly from the excess in inventory, which doubled every year, and the fixed assets. The long-term debt is predict to be increase by 70% which is necessary for the company's expansion to cover up all the expense on fixed assets or inventory for example.

The difference in net worth each year doubles by 2, therefore in year 20X5 the net worth is estimate to be $4,200,000. However, in percentage, it is a continuous decline in net worth every year (86% to 62%) which can mean two things: 1.) The existing shareholders are not reinvesting enough or the company need to issue more stocks to the public 2.) Although the return on equity has been increasing every year which mean that the company had generated high returns relative to their shareholder's equity; however, the question arises to why didn't the net worth increase when the return on equity ratio is very preferable to shareholders or investors. This might be due to other factors such as how investors assess



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