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
• 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
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