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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