For selected financial statements for Micro Chip Computer ...



For selected financial statements for Micro Chip Computer Corporation click here . Answer questions 1 and 2 below based on the financial data. 1.     Determine the year-to-year percentage annual growth in total net sales. 2.     Based only on your answers to question #1, do you think the company will hit its sales goal of +10% annual revenue growth in 2005? Determine the target revenue figure, and explain why you do or do not feel that the company can hit this target. Next, consider Micro Chip’s Consolidated Statement of Operations for the year ended September 25, 2004 (click here to download) and answer questions 1 and 2.1.     Use the Percentage Sales Method and a 20% increase in sales to forecast Micro Chip's Consolidated Statement of Operations for the period September 26, 2004 through September 25, 2005. Assume a 15% tax rate and restructuring costs of 2% of the new sales figure. 2.     Discuss your results from question number #1. What assumptions have you made? Do any of your assumptions seem unreasonable? To receive full credit on this assignment, please show all work, including formulae and calculations used to arrive at financial values. Students who are using Excel must provide an adequate explanation of the methodology used to arrive at that answer.

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

The year-to-year percentage is calculated by the following formula (Year2-Year1)/Year1 and the figure as a percentage. The calculation are in the attached file.

Year |2005 |2004 |2003 |2002 |2001 |2000 | |Net Sales |$9,167.40 |$8,334.00 |$6,141.00 |$9,181.00 |$11,933.00 |$11,062.00 | |% Change |10.0% |35.7% |-33.1% |-23.1% |7.9% |  | |

2. Based only on your answers to question #1, do you think the company will hit its sales goal of +10% annual revenue growth in 2005? Determine the target revenue figure, and explain why you do or do not feel that the company can hit this target.

The target revenue figure comes to 9,167.4. In order to answer this, we need to look at the growth rates in the previous years. In 2002 and 2003 the sales were falling and the growth rate was negative and in 2004, it was positive 35.7%. It looks like that the company has turned around in 2004 and therefore would continue on the growth path. The 2005 rate of 10% can be met. The other thing to see is the level of sales. At 9,167.4 in 2005, it is lower than 11,933 in 2001. Thus the company has sold much more earlier and thus has the capability to handle increase in sales. Based on these you could conclude that the target can be met.

1. Use the Percentage Sales Method and a 20% increase in sales to forecast Micro Chip's Consolidated Statement of Operations for the period September 26, 2003 through September 25, 2004. Assume a 15% tax rate and restructuring costs of 2% of the new sales figure.

In percentage of sales method, first the various expenses are taken as percentage of sales in the base year. This is column C in the file. The sales are then increased by the given percent. In the next yar, based on the increased sales, the expenses are calculated by applying the same percentage as calculated in the base year. This has been done in the attached file. Restructuring costs are 2% of sales in 2005 and tax rate is 15%.

2. Discuss your results from question number #1. What assumptions have you made? Do any of your assumptions seem unreasonable?

The assumption in percentage of sales is that all costs are linked to the sales and increase/decrease in the same proportion as the sales. This assumption is not reasonable. Some expenses such as cost of goods sole may have a stable relationship, but interest expense is related to amount of debt and interest rates and not to sales. Expenses like Selling General and Administrative also will not increase in the same proportion. Such expenses would increase at a lower rate, since there is always some slack in an organization which can take up increased sales.

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