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Calculate the following year-end ratios for the pro forma statements along with 2011:




Calculate the following year-end ratios for the pro forma statements along with 2011;Prepare a 100 to 200 -word portion of the financial report for the CEO containing;the Profit as a percentage of sales, and;an explanation of how you reached the calculations.;Explain which income statement and balance sheet items you assumed were;variable instead of fixed.;Memo;Also include your assumptions used in determining your numbers.;To: All Senior Staff;From: Kristen Huffman, CEO & President;Re: New Strategic Direction;Thank you for attending our annual strategic planning session. Given recent changes in the;economy and;customer needs, a new direction for our company is necessary. After reviewing how other;companies;restructured themselves in recent years, we will mirror how UPS conducts business as a;partner/consultant with large customers. For our company, however, we will go a step further;and become a;warehousing/local just-in-time (JIT) delivery source, instead of providing logistics advice to;clients, as UPS;does.;To accomplish this, we must integrate this new direction into our upcoming strategic plan and;financial;planning. First, I need all department managers to prepare their budgets.;I would also like our accounting department to move ahead on a preliminary set of pro forma;statements;even without final budgets, using the following assumptions. They must determine if external;funding is;needed.;I have attached a summary of assumptions about this new direction.New Strategic Direction;Page 2;1. Assume inflation of 4% on expenses, not including depreciation and taxes. This is in addition;to the;new initiatives costs.;New Strategic Initiative Assumptions;Huffman may overcome increased competition and economic slowdown by initiating a new;strategy, this;will turn our company into a one-stop shop and key logistics company. We will provide;consulting services;generate revenues, and become a JIT warehouse/delivery source. A local retailer selling;products from a;distant manufacturing plant, for example, may accept JIT deliveries, instead of 40-foot trailer;loads. This;would be fulfilled by the local operation.;2. Assume the following regarding variables versus fixed-nature-of-income-statement operating;expenses for the existing business;a. 80% of wage benefits is variable and 20% is fixed.;b. 100% of fuel expenses, purchased transportation, and operating supplies is variable.;c. 100% of operating taxes is fixed.;d. 20% of insurance and claims is fixed, the balance is variable.;e. Assume depreciation, even with new expenditures, is fixed as the retirement of written-off;assets, equaling new equipment.;3. There will be new spending areas reflected on future budgets to reflect added satellite;warehouse;costs and space rental and costs of running the locations.;a. In the first year, add $10 million of inflation, space rental, and operating costs at 25% of;revenues from the new initiative.;b. In the second year, add $10 million space rental, with inflation at the same variable;percentage;of sales.;c. In the third year, add $7.5 million of the variable percentage of sales.;4. In marketing, budget accounts have been added for new incurred costs. We will continue our;present promotion and launch a new program, with the assistance of our marketing partner, the;ABC;Marketing Agency. They will advise us on the type, frequency, and content of new messages.;Assume 100% of the existing budget is fixed with respect to volume along with new expenses.;We;expect incremental expenses, with $5 million of inflation in the first three years.;5. Our existing sales force, comprised of four national account managers, will call on clients;such as;Wal-Mart, Sears, and Best Buy. Existing expenses are assumed to be 100% fixed in;relation to;revenue. To tap into specialized markets, our strategy is aimed at adding four industry-specific;managers, each with a salary base of $50,000 and 2% commission of generated revenues.;6. The human resources budget will not change substantially aside from added hiring, recruiting;training, and drug testing fees. Assume 10% of expenses is fixed, the balance is variable with;volume.New Strategic Direction;Page 3;7. Assume current assets and liabilities are variable. Expect an addition of $10 million to;operating;property, spent in the first year. Our payment to vendors, suppliers, and taxes will be in thirtyday;terms. We expect all payments to be in sixty-day terms.;8. Assume revenue growth from our existing business will grow at 8% versus 10% in past years.;Our;new strategy, however, adds incremental consulting revenues of $3.5, $4.5, and $6.5 million in;the;first, second, and third years. New warehousing will add revenue of $10, $30, and $40 million in;the;first, second, and third years. All new revenue will be subject to commissions for industryspecific;managers.;View Full Attachment;Huffman Balance Sheet.xls Download Attachment;Huffman Trucking;Balance Sheet;(Unaudited);(In Thousands);2011;Current Assets;Cash & Cash Equivalents;Accounts Receivable;Prepaid Expenses & Supplies;Total Current Assets;2010;2009;2008... Show more;Huffman Income Statment.xls Download Attachment;Huffman Trucking;Income Statement;(Unaudited);(In Thousands);2011;$1,109,295;2010;$969,240;2009;2008;$842,817 $1,021,348;2007;$932,653;2006;$879,944;2005;$807,288;2004;$685,432


Paper#28369 | Written in 18-Jul-2015

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