The Manning Company has financial statements as shown next, which are representative of the company’s historical average. The firm is expecting a 35 percent increase in sales next year, and management is concerned about the company’s need for external funds. The increase in sales is expected to be carried out without any expansion of fixed assets, but rather through more efficient asset utilization in the existing store. Among liabilities, only current liabilities vary directly with sales. Income Statement
Sales $260,000
Expenses 206,000
Earnings before interest and taxes $54,000
Interest 8,700
Earnings before taxes $45,300
Taxes 16,700
Earnings after taxes $28,600
Dividends $8,580
Balance Sheet
Assets Liabilities and Stockholders'
Equity
Cash $5,000 Accounts payable $24,600
Accounts receivable 39,000 Accrued wages 2,050
Inventory 60,000 Accrued taxes 4,550
Current assets $104,000 Current liabilities $31,200
Fixed assets 97,000 Notes payable 8,700
Long-term debt 23,500
Common stock 121,000
Retained earnings 16,600
Total assets $201,000 Total liabilities and
stockholders' equity $201,000
Using the percent-of-sales method, determine whether the company has external financing needs, or a surplus of funds.