Projected Results to Meet Corporate Objectives Tablon Inc. is a wholly owned subsidiary of Marbel…

 
   

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Projected Results to Meet Corporate Objectives

Tablon Inc. is a wholly owned subsidiary of Marbel Co. The philosophy of Marbel’s management

is to allow the subsidiaries to operate as independent units. Corporate control is exercised

through the establishment of minimum objectives for each subsidiary, accompanied by substantial

rewards for success and penalties for failure. The time period for performance review is long

enough for competent managers to display their abilities.

Each quarter the subsidiary is required to submit financial statements. The statements are

accompanied by a letter from the subsidiary president explaining the results to date, a forecast

for the remainder of the year, and the actions to be taken to achieve the objectives if the forecast

indicates that the objectives will not be met.

Marbel management, in conjunction with Tablon management, had set the objectives listed

below for the year ending May 31, 2009. These objectives are similar to those set in previous

years.

• Sales growth of 20%

• Return on stockholders’ equity of 15%

• A long-term debt-to-equity ratio of not more than 1.0

• Payment of a cash dividend of 50% of net income, with a minimum payment of at least

$400,000

Tablon’s controller has just completed the financial statements for the six months ended

November 30, 2008, and the forecast for the year ending May 31, 2009. The statements follow.

After a cursory glance at the financial statements, Tablon’s president concluded that not

all objectives would be met. At a staff meeting of the Tablon management, the president

asked the controller to review the projected results and recommend possible actions that

could be taken during the remainder of the year so that Tablon would be more likely to meet

the objectives