1 answer

Help with the 2020 forecast part! Thanks Exclude (000,000) in millions Revenue Cost of Goods Sold...

Question:

Help with the 2020 forecast part! ThanksExclude (000,000) in millions Revenue Cost of Goods Sold Gross Profit Selling, Admin, Other Net Operating Income Three Most R

Exclude (000,000) in millions Revenue Cost of Goods Sold Gross Profit Selling, Admin, Other Net Operating Income Three Most Recent Years 2019 2018 $20,156,447 $15,794,214 $12,440.213 $9,967,538 $7,716,234 $5,826,676 $3,566,831 $2,999,763 $4,149,403 $2,826,913 SOURCE USED: SEC.gov 2017 $11,693,713 $7,659,666 $2,141,590 $1,892,457 ==Be sure to confirm OPERATING INCOME Total Assets at Year-End Shareholder Equity Y/E $33,975,712 $7,582,157 $25,974,400 $5,238,765 $19,012,742 $3,581,956 1. Sales Growth 27.6% 35.0% 3.2% (CY - PY)/PY 2. Profitability Gross Profit Margin Operating Margin Return on Assets Return on Equity 34.5% 7.2% 38.3% 12.9% % 34.0% 36.9% 10.2% % 30.0% GP/Rev NOI / Rev NOI / Assets OK to use Operating Income NOI / Equity OK to use Operating Income % A. My forecast for 2020 year's sales growth is because (list two reasons) 1. 2. % B. My forecast for 2020 year's oper'g. margin is because (list two reasons) 1. 2.

Answers

A. My Forecast for 2020 year’s sales growth is 20.5% to 21% because

1. It is high growth company. Though, there has been absolute growth in the sales during the last 3 years period and a consistent absolute increase in the sales amount but in terms of % it is showing decrease effect and it has been assuming that growth rate (to moderate) due to base effect. Base in 2019 has increased vs low base in 2017-2018 vs 2017 growth rate moderation is 7.4% (35%-27.6%). We have assumed moderation at 7% around, the expected sales comes to 20.5% (27.6%-7% moderation) and thus sales growth assumed to range 20.5%-21%

2. Absolute sales number has increased by 4.1mn/4.4mn, We assume similar trajectory after 2019 ie 4.25 mn (average of two) giving sales growth of 20.5%.

B. My Forecast for 2020 year’s operating margins is 22.6% ie+2%                                      vs last year ( because last year operating margin calculation wrong 10.2% instead of 20.6%)

1.Gross margin has expanded by 1.4% (38.3%%-36.9%)/2.4% (36.9%-34.5%) in 2019/2018 YOY. This implies either the company is able   to price higher with better product demand or its getting vendor rebates/has bargaining power vs its suppliers leading to better gross margins.

Expecting gross margins to expand by 0.7% (lower vs last two years) as the trend is already towards reducing expansion ie 1% (2.4%-1.4%)difference in expansion between 2017-19.

2. Selling & Admin expenses have been showing reducing as a % of sales from 19% to17.7% between 2018-19 reflecting operational leverage. We expect this to reduce to 16.4% in 2020 forecast sales. This implies we forecast sale, admin expenses 3999845. Thus gives us operating margin at 22.6%.

Note: Computed net operating margin in the problem is wrong or the question is wrong but my solution is above based on inputs.

.

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