Unit 2 Financial Management Project

Part One

1. Determine the year-to-year percentage annual growth in total net sales.

To calculate percentage change, the following formula is used:

% change= (New Year net sales-previous year net sales) / (previous year net sales)

1. 2004: Starting point: 0%
2. 2005: ($11,933-11,062) / ($11,062) = 0.787= 7.87%
3. 2006: ($9,181-$11933) / ($11,953) = (-).2306= -23.06%
4. 2007: ($6141-$9181) / ($9181) = (-).331= -33.11% 
5. 2008: ($8334-$6141) / ($6141) =.3571=35.71%

1. Using the same formula as stated above, solve for 2009 total net sales at 10% annual revenue growth:

10 %=( x-2008 net sales) / (2008 net sales)

.10= (x-8334) / (8334) = 833.4=(x-8334) x=9167.4 2009 Target Revenue net sales is $9167.40

Yes, I do believe that a company can achieve its target of $9167.40 in 2009.  Although the company had a decline in total net sales in 2006 and 2007, it rebounded in 2008 with a 35.71% sales growth.  Therefore, I believe that the company has stabilized and can reach its goal of +10% annual revenue growth in 2009.

Part Two

1. Use the Percentage Sales Method and a 25% increase in sales to forecast Micro Chip's Consolidated Statement of Operations for the period of September 26, 2008 through September 25, 2009. Assume a 15% tax rate and restructuring costs of 5% of the new sales figure.

(See Chart below) Percent of sales = Dividing the balance for the accounts for 2007-2008 by sales revenue (8334.00) for 2007-2008

For example: % of sales for cost of sales=

(Cost of sales / sales revenue) = $5458 / 8334=.6549=65.49%

(Gross margin/sales revenue) = $2876/8334=.3451=34.51%

(R&D/sales revenue)=525/8334=.0630=6.30%

(Selling, general and administrative /sales revenue) = 691/8334=.0829=8.29%

(Total operating expenses/sales revenue) = 1216/8334=.1459=14.59%

(Operating income/sales revenue) = 1660/8334=.1992=19.92%

(Total interest/sales revenue)=194/8334=.0233=22.25%

(Provision for Income taxes/sales revenue) = 278.10/8334=.0334=3.34%

(Net Income/sales revenue)=1575.90/8334=.1891=18.91%

25% increase in sales = $8334.00 x 1.25+ $10417.50

Assuming all categories do not change from 2008-2009 in regards to % of sales (except for restructuring cost):

2009 FIGURES

Cost of sales: (x / 10417.50) = .6549 = $6822.42

Gross margin: (x/10417.50) = .3451=$3595.08

Total Operating Expenses

R & D= (x / 10417.50) = .0630=$656.30

Selling, general and administrative= (x / 10417.50) = .0829= $863.62

Restructuring Cost= (x / 10417.50 = .05=$520.88

Total operating expenses= selling, general & administrative + restructuring + R&D = $2040.80

% of sales of total operating expenses= (2040.80 / 10417.50) = .1959=19.59%

Operating income % of sales decreases by 5% due to restructuring 5% so:

19.92% - 5% = 14.92%

(x / 10417.50) = .1492= $1554.29

Total interest and other income etc. = (x / 10417.50) = .0233= $242.73

Income before tax will be 5% less than 2008 due to 5% restructuring cost so: (22.25%-5%)=17.25%

Therefore: (x / 10417.50) = .1725= $1797.02

Provision for Income Tax= Income before tax X .15= 1797.02 x .15=$269.55

(269.55 / 10417.50) =.0259=2.59% (% of sales for Provision for tax income)

Net income= Income before provision for taxes – provision for taxes

$1797.02 - $269.55 = $1527.47

% of sales of net income = $1527.47 / 10417.50=.1466=14.66%