Micro Chip Computer Corporation’s Performance

Topic: Business Words: 552 Pages: 2 Apr 10, 2022

This analysis is the study of the performances of Micro Chip Computer Corporation. In the process of studying the sales growth, I prepared year-to-year percentage annual growth and forecasted income statements for 2009. Based on the analysis that was performed, inferences have been made.

The year-to-year percentage annual growth in total net sales

The percent change in sales was minimal in 2006- 2007 and maximum 2007-2008 that is increasing to 35.71% from -33.11%.

	2004 -2005	2005-2006	2006-2007	2007-2008	Average
Net sales (millions	11,933	9,181	6,141	8,334
Growth in sales S₂– S₁ S₁	11933-11062 11062 =7.87%	9181-11933 11933 =-23.06%	6141-9181 9181 =-33.11%	8334-6141 6141 =35.71%	-3.15%

S₁ – previous year sales
S₂– Current year sales

The company is likely to achieve +10% annual revenue growth in the year 2009. In fact, most companies experienced a decline in sales in 2007-2008 when Micro Chip Computer Corporation showed some growth.

It is very evident from the above figures that the company will deliver extremely good results in terms of growing sales volume. Using the calculations stated above, one figure outgrowth in sales will +10% per year. The target revenue figure expected is 110% of 8,334,000,000= 9,167,400,000. The sales growth clearly indicates the company’s success.

However, there is a lack of information as to how much of the growth comes from their products, manufacturing or from design activities.

Forecasting Of Income Statement

The income statement shows the profit the company makes. However, since the income statement consists of a lot more data than just the profit earned, it is helpful for internal and external stakeholders. This is because the income statement shows exactly how the company has come to earn the profit it posts. The essence of the income statement lies in explaining how the revenues and expenses lead to the mentioned profits. Generally, managers are satisfied and investors favorable towards companies that have as high revenue margins and fewer expenses as possible.

	2008	Percentage	Forecasted 2009
Sales	8,344	100%	10,012.80
Cost of sales	5,458	65.41%	6,549.37
Gross margin	2,876	34.59%	3,463.43
Operating expenses
R & D	525	6.29%	629.81
Selling, General and administrative	691	8.28%	829.06
In- process R&D	–
Restructuring cost	–	2.00%	200.26
Total operating expenses	1,216	14.57%	1659.13
Operating income	1,660	20.02%	1,804.3
Total Interest and other income net	194	2.33%	233.30
Income before provision for income taxes	1854	22.35%	2,037.60
Provision for income tax (15%)	278.10		305.64
Net income	1575.90	19.02%	1,731.96

Sales for 2009 = 120% of 8,344,000,000= 10,012,800,000

Most of the items in the income statement have been forecasted using the percentage of sales method. Selling/general/admin expenses have been calculated using the percentage of sales method. Other operating expenses were calculated as a percentage of sales; however we did not use either the arithmetic or geometric mean. Instead, I looked at the data and saw that the expenses had increased significantly in the previous year and decided that is was likely that this would continue in the future, especially when seeing that the selling/general/admin expenses had decreased. Therefore the decision was made to use 20% of sales as our forecasting assumption because it was in between the arithmetic mean and the 2009 calculation and seemed like a likely result.

The assumption in this case is that the growth experienced in 2008 was not due to an extraordinary sale or item but due to normal marketing. This assumption is reasonable.