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(million pesos)
2003 2004
Cost of Goods Sold (COGS) 462.2 468.2 Ratio of COGS to sales [86.9451%]
The sales forecast is the starting point of the forecasted income statement. It is also known as the “pro forma income
statement” or the “profit budget”.
The COGS is estimated using a listing of its major components to determine whether major deviations from past cost
trends can be expected. For example:
If there is no such changes, the ratio of the COGS to sales will be a sufficient basis.
Operating expenses are less susceptible to changes in sales because of the fixed nature of some of the expense items.
From an outside analyst’s perspective, we can assume an “inflation rate” adjustment as represented by the rate of
increase in 2003 over 2002.
BACNOTAN CONSOLIDATED INDUSTRIES, INC.
2003 2004
Cash and Temporary Investments P41.15 P41.84 Same as 2003 proportion to all expenses
Inventories and in-Transit Raw Mats. 100.31 101.61 Turnover: ratio of inventory to COGS
Notes, Other Receivables and Prepayments 14.81 14.81 No change over 2003
Property, Plant & Equipment 976.4 946.44 Reduced by total depreciation for 2004
Deferred Charges and Other Assets 19.88 8.16 Same reduction from 2002 and 2003
Current Portion of Long-term debt 14.82 97.35 With increase of $82.53 from 2003
The A/R forecast should consider the sales for 2004 along with the company’s credit policy and bad debts.
We can base our estimate on the prevailing A/R turnover rate of 23.17 times or about 15 days’ sales tied up in A/R.
With sales forecasted at P538.5 in 2004, the estimated A/R for 2004 comes up to P23.24 million (P538.5 / 23.17)
The inventory forecast should be based on a production schedule given sales and should depend on prevailing inventory
levels, prices, and stock policy.
Estimates should also be made using the inventory turnover ratio as we have done.
Net fixed assets are estimated by determining the amount of additional capital expenditures planned disposition of fixed
assets and depreciation for the next period.
We assumed that only depreciation on cost of fixed assets, worth P22.9 million as in 2003, will affect the net fixed assets
account for Bacnotan.
Since this ratio was 86.7% in 2003 and we estimated the inventory for 2004 at P101.61 million, accounts payable is set at
P88.15 million.
Capital stock and other capital accounts can be estimated by determining the planned new stock issues for the next
period net of any retirement of stocks.
In certain companies, revaluation surplus is recognized. For Bacnotan, we reduced the revaluation surplus by the
estimated depreciation on appraisal increase n fixed assets based on the prevailing company practice.
This serves to integrate the pro forma balance sheet and income statement into the sources and uses of cash
perspective.
Loan amortization and other payables Proceeds from sale of fixed assets or investments
2004
Assumptions/Sources of Data
Beginning Cash Balance, June 30, 2003 P41.15 Ending balance for cash and temporary investments as of June
30, 2003
Collection of current assets 515.26 All sales were collected except ending receivables balance, 2004
Cash disbursements:
Payments for COGS P357.15 All costs were paid in cash except depreciation and ending A/P
balance in 2004
Payment of 2003 Income Tax balance 7.30 All tax outstanding pertains to 2004
Payment of beginning notes payable 35.23 The current classification justifies this treatment
Other cash operating expenses 22.30 Cash expenses other than COGS
Ending Cash Balance Forecast, 6/30/04 P41.84 Corresponds to ending balance of cash and temporary
investments as of 6/30/04