CASE STUDY 3

Planning for Growth at S&S Air

After Chris completed the ratio analysis for S&S Air, Mark and Todd approached him about planning for next year's sales. The company had historically used little planning for investment needs. As a result, the company experienced some challenging times because of cash flow problems. The lack of planning resulted in missed sales, as well as periods when Mark and Todd were unable to draw salaries. To this end, they would like Chris to prepare a financial plan for the next year so the company can begin to address any outside investment requirements. The income statement and balance sheet are shown here:

QUESTIONS

1. S&S Air is planning for a growth rate of 12 percent next year. Help Chris to prepare the pro forma income statement and pro forma balance sheet, and calculate the external financing required for the company assuming the company is operating at full capacity.

2. Can you identify some possible problems in the pro forma financial statement you prepared?