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6-3 Assignment: 24-Month Pro Forma 24-Month Pro Forma
|
Previous Fiscal Year |
24-Month Projections |
|
|
Sales |
$ 322,500,000,000 |
$348,000,000,000 |
|
Cost of goods sold |
$ 196,892,000,000 |
$215,000,000,000 |
|
Gross profit |
$ 125,575,000,000 |
$133,000,000,000 |
|
Selling expenses |
$ 51,728,000,000 |
$55,000,000,000 |
|
Administrative expenses |
$ 99,000,000 |
$100,000,000 |
|
Total operating expense |
$ 10,084,000,000 |
$11,000,000,000 |
|
Income from operations |
$ 3,618, 000,000 |
$4,500,000,000 |
|
Other income |
$ -43,000,000 |
$50,000,000 |
|
Income before tax and interest |
$ 3,618,000,000 |
$4,550,000,000 |
|
Other expense (interest) |
$ 552,000,000 |
$600,000,000 |
|
Income before income tax |
$ 3,109,000,000 |
$3,950,000,000 |
|
Income tax expense |
$ 809,000,000 |
$1,000,000,000 |
|
Net income |
$ 2,302, 000,000 |
$2,950,000,000 |
Explanation of Assumptions
Based on the provided information, the following assumptions were made to project the financial figures for the 24-month period:
1. Revenue Growth: The historical revenue growth trend of the company was considered to estimate future sales. The average growth rate of 9.5% over the 3 months ending December 31, 2022, and 10.4% for the year ending December 31, 2022, was used to project revenue (CVS Health, 2023). It is assumed that the company will continue to experience similar growth rates in the coming 24 months.
2. Operating Expenses: The historical trend and the impact of significant events were considered to estimate future operating expenses. In the three months that ended December 31, 2022, the absence of certain one-time charges resulted in a significant increase in operating income compared to the prior year (CVS Health, 2023). It is assumed that the company will maintain a similar expense structure and efficiency, resulting in a modest increase in operating expenses.
3. Interest Expense: The historical trend of interest expense was considered to project future interest costs. A decrease in interest expense was observed in the 3-months and year ended December 31, 2022, primarily due to lower debt (CVS Health, 2023). It is assumed that the company will continue to manage its debt effectively, resulting in a slight increase in interest expense over the 24 months.
4. Income Tax Rate: Future income tax expenses were estimated using the prior year's effective income tax rate. The specific variables described in the report were mostly responsible for the rise in the effective income tax rate in the fourth quarter and the entire year of 2022 compared to the previous year (CVS Health, 2023). It is assumed that the company's tax position and applicable tax laws will remain relatively stable, resulting in a similar effective tax rate going forward.
References
CVS Health. (2023). CVS HEALTH REPORTS STRONG FOURTH QUARTER AND FULL-YEAR 2022 RESULTS FULL-YEAR HIGHLIGHTS. https://www.cvshealth.com/content/dam/enterprise/cvs-enterprise/pdfs/2023/earnings-summary-2022-q4.pdf
