Capstone in finance mod 4 project Profit Projections

Background

Strategic planning is critical to the growth and sustainability of any organization. An organization cannot design and implement strategic initiatives without an estimate of future profitability. Organizations acquire this insight by constructing profit projections. If a firm’s profit projection is inaccurate, it will ultimately lead to misguided decisions that may adversely impact the firm’s performance. Thus, firms must be diligent and meticulous in the construction of their profit projections.

Instructions

You were recently promoted to a senior financial analyst at Capital Financial, and have been tasked with forecasting the firm’s 2018 profits. To develop the profit projection, you will apply the Percent of Sales method. The key consideration for this method is that income statement data sets will increase with sales.

Create Capital Financial’s profit projection for 2018 using the spreadsheet provided below.

• File download: Profit Projection Spreadsheet
• Important notes regarding the 2017 forecast information:
  • Costs, excluding depreciation, were 78% of sales.
  • Depreciation was 7.333% of sales in 2017.
  • Capital Financial pays a 35% tax rate.
  • Where “n/a” is specified, the abbreviation indicates that percentage of sales is not applicable for that set of data.
• Capital Financial is forecasting an 18% growth in sales from 2017 to 2018.

Part 1

Download and open the spreadsheet template provided above. Consider the values within the spreadsheet and the information above, then do the following:

1. In the first table in the spreadsheet, calculate the following as a percentage of sales for 2017:
   1. EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)
   2. EBIT (Earnings Before Interest, and Taxes)
   3. Pretax Income
   4. Net Income
2. In the second table in the spreadsheet calculate the following for 2018:
   1. Cost Except Depreciation
   2. Depreciation
   3. Interest Expense
   4. Income Tax (35%)
3. In the second table in the spreadsheet, forecast the following profitability metrics for 2018:
   1. EBITDA
   2. EBIT
   3. Pretax Income
   4. Net Income
4. Save your Microsoft Excel Spreadsheet. (Mac users, please remember to append the “.xlsx” extension to the filename.)
   1. The name of the file should be your first initial and last name, followed by an underscore and the name of the assignment, and an underscore and the date. An example is shown below:
      Jstudent_exampleproblem_101504

Part 2

In a separate Word document, address the following:

1. Explain the premise for the percentage of sales method.
2. Describe how an accurate profit projection supports the decision making process within the organization.
3. Save your Microsoft Word document. (Mac users, please remember to append the “.docx” extension to the filename.)
   • The name of the file should be your first initial and last name, followed by an underscore and the name of the assignment, and an underscore and the date. An example is shown below:
     Jstudent_exampleproblem_101504