22 Feb Projected Results to Meet Corporate ObjectivesGrou
Projected Results to Meet Corporate ObjectivesGrout Inc. is a wholly owned subsidiary of Slait Co. The philosophy of Slait’s management is toallow the subsidiaries to operate as independent units. Corporate control is exercised through theestablishment of minimum objectives for each subsidiary, accompanied by substantial rewardsfor success and penalties for failure. The time period for performance review is long enough forcompetent managers to display their abilities.Each quarter the subsidiary is required to submit financial statements. The statements areaccompanied by a letter from the subsidiary president explaining the results to date, a forecastfor the remainder of the year, and the actions to be taken to achieve the objectives if the forecastindicates that the objectives will not be met.Slait management, in conjunction with Grout management, had set the objectives listedbelow for the year ending September 30, 2009. These objectives are similar to those set inprevious years. Sales growth of 10% Return on stockholders’ equity of 20% 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$500,000Grout’s controller has just completed preparing the financial statements for the six months endedMarch 31, 2009, and the forecast for the year ending September 30, 2009. The statements are presentedon the following page.After a cursory glance at the financial statements, Grout’s president concluded that not allobjectives would be met. At a staff meeting of the Grout management, the president asked thecontroller to review the projected results and recommend possible actions that could be takenduring the remainder of the year so that Grout would be more likely to meet the objectives.