PENTA LTD

Penta Ltd

Penta Ltd

Question# 1

Investment Opportunity 1

The forecasting of a company's profits is important to a firm, its creditors, and its investors. The enterprise generally prepares its annual profits outlook as part of its budget process. The forecasting of profits is exceedingly tough since it is reliant on some variables. In case of Penta Ltd, sales are expected to grow 30% per year over the first 3years of operation in real terms after which they will revert to a 1% real growth; Working capital will increase in line with increases in sales for the first 3 years and there will be no changes afterwards.

In order to forecast a company's earnings, three major factors must be considered: 1. Forecasted sales 2. The company's cost structure, and the company's capital structure and, just to complicate matters, the numerical results of these considerations can be affected by the company's accounting policies. The beginning issue in any outlook is sales. Forecasting sales is prime to earnings forecasts. Although management exerts some degree of control over expenditures, it has little proficiency to direct the buying habits of individuals; the level of sales counts of the vagaries of the marketplace. Yet, a sales forecast must attain a sensible degree of reliability to be useful.

Since volume and trading cost outlooks will disagree by product or enterprise segment, the perfect sales and related cost forecasts should be finished for each foremost product or segment of the firm. This is particularly critical when products or segments have different constructing or circulation cost structures. Sales volume in flats and unit trading charges need to be projected. The level of sales for future time span is reliant on not only what the firm has finished in the past, but furthermore what it conceives it can do in the future. Some ancillary matters that will need to be settled as part of the sales forecast may arise. For demonstration, if sales are projected to increase, will the firm be needed to redesign its output processes, buy new gear, lift additional capital, charter more workers, or buy new types of materials? Increasing sales may cause bottlenecks and inefficiencies (Anthony, 56).

Sales (50,000 x £ 110)£5,500,000

Less Cost of pieces Sold:

Beginning Inventory (5,000 x £60.00)£300,000

Direct Materials (55,000 x $ 18.50)1,017,500

Direct Labor (55,000 x 4 hours x £ 12.00) 2,640,000

Overhead (£ 2,640,000 x .20) 528,000

Cost of Available Sales 4,485,500

Less Ending Inventory (1) 380,500)

Cost of Goods Sold(4,105,000)

Gross Profits 1,395,000

Less Operating Expenses:

Marketing Expenses(350,000)

General & Administrative(400,000)

Net Income£ 645,000



Under LIFO, last costs in are: £ 1,017,500 + £ 2,640,000+ £528,000 = £ 4,185,500 / 55,000 = £ 76.10 x 5,000 = £ 380,500.

EXHIBIT 15 — FINANCIAL form FOR CASH

Relationships (Equations):

Cash(t) = money(t-1) + money Receipts(t) + money Disbursements(t)

Cash Receipts(t) = (a) x Sales(t) + (b) x Sales(t-1) + (c) x Sales(t-2) + Loan(t)

Cash Disbursements(t) = anecdotes Payable(t+1) + Interest(t) + lend Payment(t)

Input Variables in Dollars:

Sales(t-1), Sales(t-2), Sales(t-3)

Loan(t), Loan Payment(t)

(a): anecdotes Receivable Collection Pattern in present ...