P 9-3

Comparative income statements and balance sheets for Merck ($ millions) follow:

Required:
a. Use the following ratios to prepare a projected income statement, balance sheet, and statement of
cash flows for Year 3.
b. Based on your initial projections, how much external financing (long-term debt and/or
stockholders’ equity) will Merck need to fund its growth at projected increases in sales?
a.

Merck

Year 3
INCOME STATEMENT Estimate Year 2 Year 1

Net sales 56,435 47,716 40,343

Cost of goods 34,272 28,977 22,444

Gross profit 22,164 18,739 17,900

Selling general & administrative expense 7,725 6,531 6,469

Depreciation & amortization expense 1,661 1,464 1,277

Interest expense 237 342 329

Income before tax 12,541 10,403 9,824

Income tax expense 3,762 3,121 3,002

Net income 8,779 7,282 6,822

Outstanding shares 2,976 2,976 2,968

RATIOS

Sales growth 18.27% 18.27%

Gross Profit Margin 39.27% 39.27%

DEPRECIATION (depn exp / pr yr PPE gross) 8.76% 8.76%

INT (int / pr yr LTD) 4.94% 4.94%

Tax (Inc Tax / Pre-tax inc) 30.00% 30.00%

Cash 5,254 3,287 4,255

Receivables 6,168 5,215 5,262

Inventories 4,233 3,579 3,022

Other 880 880 1,059

Total current assets 16,536 12,961 13,598

Property, plant & equipment 24,056 18,956 16,707

Accumulated depreciation 7,514 5,853 5,225

Net property & equipment 16,543 13,103 11,482

Other assets 17,942 17,942 15,075

Total assets 51,020 44,007 40,155

Accounts payable & accrued liabilities 6,983 5,904 5,391

Short-term debt & cmltd 4,067 4,067 3,319

Income taxes 1,897 1,573 1,244

Total current liab 12,947 11,544 9,954

Deferred income, taxes and other 11,614 11,614 11,768

Long term debt 4,787 4,799 3,601

Total liabilities 29,347 27,957 25,323

Common stock 30 30 30

Capital surplus 6,907 6,907 6,266

Retained earnings 37,123 31,500 27,395

Treasury stock 22,387 22,387 18,858

Shareholder equity 21,673 16,050 14,832

Total liabilities & net worth 51,020 44,007 40,155

RATIOS
AR turn 9.15 9.15 7.67

INV turn 8.10 8.10 7.43

AP turn 4.91 4.91 4.16

Tax Pay (Tax pay / tax exp) 50.41% 50.41% 41.45%

FLEV 2.35 2.74 2.71

Div/sh $1.06 $1.06 $0.98

CAPEX 5,100 4312 3641

CAPEX/Sales 9.04% 9.04% 9.03%

Year 3
Statement of Cash Flows Estimate

Net income $ 8,779

Depreciation 1,661

Accounts receivable -953

Inventories -654

Accounts payable 1,079

Income taxes 323

Net cash flow from operations 10,235

CAPEX -5,100

Net cash flow from investing activities -5,100

Long term debt -12

Additional paid in capital 0

Dividends -3,156

Net cash flow from financing activities -3,168

_____
 Net change in cash 1,967

Beginning cash 3,287

Ending cash 5,254

b. Kinerja di Tahun 9 buruk jika dibandingkan dengan Tahun 8. Salah satu titik terang adalah
persentase Beban Pokok Penjualan terhadap Penjualan, yang menurun di Tahun 9. Namun,
Beban Usaha naik tajam. Kenaikan tajam dalam biaya operasional ini tidak terduga karena
biasanya ada komponen biaya tetap yang lebih besar yang terdiri dari biaya-biaya ini
dibandingkan dengan Harga Pokok Penjualan.
Manajemen lebih lanjut harus memeriksa biaya operasional. Jika biaya operasional tetap pada
tingkat Tahun 8 sebesar 10,2%, pendapatan akan naik dengan baik untuk Tahun 9. Biaya
operasional mungkin termasuk komponen terarah di masa depan seperti biaya iklan atau
pelatihan. Selain itu, manajemen ingin menindaklanjuti perubahan margin kotor. Peningkatan
tajam dalam margin kotor mungkin disebabkan oleh faktor-faktor seperti lapisan persediaan
LIFO likuidasi atau, sebagai alternatif, karena sesuatu yang lebih mendasar dengan aktivitas
perusahaan.