ACCOUNTING
The Manning Company has the following financial statements, which are representative of the company's historical average.
Income Statement
Sales $200,000
Expenses 158,000
Earnings before interest and taxes $ 42,000
Interest 7,000
Earnings before taxes $ 35,000
Taxes 15,000
Earnings after taxes 20,000
Dividends $ 6,000
Balance Sheet
Assets
Cash $ 5,000
Accounts receivable 40,000
Inventory 75,000
Current assets $120,000
Fixed assets 80,000
Total assets $200,000
Liabilities & Stockholders' Equity
Accounts Payable $25,000
Accrued wages 1000
Accrued Taxes 2000
Current liabilities $28,000
Notes payable 7000
Long-term debt 15,000
Common Stock 120000
Retained earnings 30000
Total liabilities & stockholders' equity 200000
The firm is expecting a 20 percent increase in sales next year, and management is concerned about the company's need for external funds. The increase in sales is expected to be carried out without any expansion of fixed assets, but rather through more efficient asset utilization in the existing store. Among liabilities, only current liabilities vary directly with sales.
Using the percent-of-sales method, determine whether the company has external financing needs, or a surplus of funds. (Hint: A profit margin and payout ratio must be found from the income statement.)
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