...Pro forma income statement is similar to historical income statement, the difference is that the pro forma income statement projects the future. Pro forma income statements provide an important benchmark for operating a business throughout the year ( BusinessTown 2001 ). It provides the information that they need to help them make the right choices for their business. The XYZ Company are looking to increase their sales in the next five years. The company will introduce a new product and they will also maximize capacity in order to achieve company’s growth. Through the increase sale, the company will be able to get fixed assets with the use of their excess cash and in necessary they will take some loans to cover the additional cost that will arise. The pro forma income statement show a 12% increase in their gross sales and in the next five years there will be an 11% increase. There will be an increase in the cost of sales and those for the supplies, raw materials and product ion labor of the company that will happen when they start to add the new product. The increase will be tied to the expense of selling and under that are the new products commission sale, marketing the new product and hiring new workers. The total cost of sale represent 60.1 % and the gross profit is 39.9% of increase on sales. The total operating expenses will be 16.4 % of the sales and under that are payroll taxes, major expenses wages and benefits. Under the wages is hiring new worker, if needed, but the...
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...XYZ Company, Inc: Analyzing Pro Forma Statements Karen E. Estremera Pizarro University of Phoenix FIN/571 - Foundations of Corporate Finance June 23, 2014 Prof. Victor Mojica – Rivera Analyzing Pro Forma Statements Pro Forma Statements are financial statements that a company prepares to consider the effects of potential activity (Pro Forma Statement, 2013). It is a financial statement showing the forecast or projected operating results and balance sheet, as in pro forma income statements, balance sheets, and statements of cash flows ((Parrino, Kidwell, and Bates, 2012). The XYZ Company, Inc. is looking to increase the sales in the next five years with the introduction of a new product in their organization. The following paper will review XYZ Company’s five-year financial plan to grow the organization. To achieve the company growth the strategy is introduce a new product and maximize capacity. Through increased sale, we will be getting fixed assets with the excess cash and will be taking loan if is necessary to cover any additional costs arise or are not sufficiently measured. Below in Figure 1-1, the pro forma income statement shows a 12% increase in gross sales for the year 2014 and 11 % in the next five-years. Therefore, in same proportion have been estimated the increase in the cost of sales, then other operating expenses and selling expenses will increase in the same ratio of sales. The increase in cost of sales are the purchases of raw...
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...What is the purpose of a Pro Forma income statement? How would you use the information from the Pro Forma income statement? Provide an example. According to businesstown.com, Pro Forma income statements are “an important tool for planning future business operations. If the projections predict a downturn in profitability, you can make operational changes such as increasing prices or decreasing costs before these projections become reality.” Pro Forma income statements are used to let investors know a company’s operating results, conforming to investopedia.com, “Pro Forma financial statements take out one-time charges to smooth earnings.” In addition, “Pro-forma earnings describe a financial statement that has hypothetical amounts, or estimates, built into the data to give a "picture" of a company's profits if certain nonrecurring items were excluded.” (investopedia.com) The information from a Pro Forma income statement can be used through: * To give investors a clearer view of company operations - This applies to the nature of a business. investopedia.com explains that “Companies in certain industries tend to use pro-forma reporting more than others, as the impetus to report pro-forma numbers is usually a result of industry characteristics. For example, some cable and telephone companies almost never make a net operating profit because they are constantly writing down big depreciation costs.” (businesstown.com) But; * For companies that do not include cash charges...
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...Analyzing Pro Forma Statements Kaleah S. Daniels FIN/571 Analyzing Pro Forma Statements Pro forma statements are prepared to forecast financial results that are based on anticipated future projects or events. It is design to show projection of revenues, cash flows deducting the estimated expenses or costs for a particular business plan. Pro forma statements assist financial managers to plan accordingly, in terms of the company’s financial needs. How much financing is needed and when it is needed can be determined by acquiring an estimate of the company’s future balance sheet accounts and income statement. Hence, the purpose of the Pro forma analysis is to forecast the company’s financial statements under a particular condition (Parrino et al., 2012). XYZ Company, INC. is planning for business expansion in the coming years. This paper will discuss and analyze pro forma statements of five year projections created. The company’s income statement displays that the break in the current year occurred when; “Net sales equals $1,747,698, Gross profit equals $697,428 and Total operating expenses equals $285,850” (UOP, 2014). XYZ’s “management expects sales to increase by 10 percent for the coming year. Assuming that the financial statement accounts vary directly with changes in sales and that management has no financing plan at this time” (Parrino, 2012, pg. 613). Using the data from the current statement (income & balance sheet) we are able to calculate, 1) Projected...
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...Analyzing Pro Forma Statements FIN/571 Kalena Armstrong-Henry November 4, 2013 Analyzing Pro Forma Statements General and financial managers can both benefit from forecasting financial statements. Proforma statements assist financial managers to plan accordingly, in terms of the company’s financial needs. How much financing is needed and when it is needed can be determined by acquiring an estimate of the company’s future balance sheet accounts and income statement. Hence, the purpose of the Proforma analysis is to forecast the company’s financial statements under a particular condition (Parrino et al., 2012). Subsequently, total assets must equate the sum of total liabilities and owner’s equity; otherwise the manager must consider corrective action (Parrino et al., 2012). The Proforma analysis has been proven to be instrumental for general managers in the planning of inventory and employment intensities; particularly problems solving issues. During the developing stages of the forecasting a manager is permitted to analyze the results; thus, identifying potential “hot spots” and handling the issues accordingly. Dealing with “hot spots” with ample time to spare during the forecasting stage is vital to any financial manager. When performing a Proforma Analysis the financial manager can handle forthcoming issues weeks or months in advance; thus, providing the manager ample time to avoid a potential real-time calamity. Subsequently, the manager will gain the ability to...
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...Check Point Financial Forecasting November 12, 2012 The most comprehensive means of financial forecasting is to develop a series of pro forma, or projected, financial statements. Financial forecast is about the pro-forma income statement, cash budget, and pro-forma balance sheet. The statements are often required by bankers and other lenders as a guide for the future. A brand new company needs to have sales projection plan, production plan, and have a pro forma income statement because it is a new business, so it would not have any prior financial reports. If there was a new business that I would trying to open, I would have to know, how much money products are going to cost, how much revenue. I would need to make and what is expected of the business. Family owned company, would need the same thing. It is still treated like a brand new company because you still need financial reports, which are production plan, cash balance and sales projections to get the banks to finance and to know how the bill are going to be paid. A long-standing corporation is a little different because they have been there longer and there are more financial statements. There are pro-forma income statements, cash budget, and other budgets used together equal pro-forma balance sheet are used by business small and large to obtain lending, set production levels, forecast sales, and forecast profits. There is an end budget plan because the business has been there longer, than the other...
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...Professor Crocker H. Liu | Financial Management, Spring 2000 Tire City Case Frequently Asked Questions | | Note: What I'm trying to make you do is THINK! To read things carefully. To make judgements for yourself without your parents/teachers telling you what to do. This is an INDIVIDUAL project and therefore, anyone who cheats will be given an F in the course. Marine Corp. slogan: The weak quit when they experience pain, the strong quit only when the mission is accomplished. Hawaiian: ho'oikaika Collaborating with Others: * I would like to know if we can work on the case with another student to make things a bit easier and more productive, but still hand in separate copies. If you wish to discuss the case with another student that's fine. However, if you are "borrowing his spreadsheet" and modifying it slightly and/or "lifting his analysis" but putting it in your own words the answer is NO!! It's always easier to work in a group but there is too much free ridership. I HATE remoras (a tiny fish that gets a free ride and free eats but sticking to the belly of a shark). Also, you already know the grade you'll be getting if your report and spreadsheet resemble another student's. I don't make idle threats. In Class Example: * I was wondering whether you were going to post a completed version of the Financial Planning Spreadsheet on the net. As far as posting a completed version of the Financial Planning Spreadsheet on the net, it is already in your Financial...
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...Financial Performance | -73.50 | 211.50 | 8.54 | 0.41 | Market Performance | 0.00 | 0.65 | 0.10 | 0.39 | Marketing Effectiveness | 0.00 | 0.82 | 0.20 | 0.60 | Investment in Future | 0.00 | 468.30 | 1.01 | 2.73 | Wealth | -2.12 | 5.21 | 0.41 | 0.78 | Human Resource Management | 0.00 | 0.82 | 0.21 | 0.70 | Asset Management | 0.00 | 2.10 | 0.33 | 1.30 | Manufacturing Productivity | 0.00 | 1.00 | 0.22 | 0.49 | Financial Risk | 0.00 | 1.00 | 0.27 | 0.99 | A2. B1 Until Quarter four I did not fully grasp the purpose of the Pro forma statements. I did not understand that the pro-forma was a projection of your decisions that you were making in the current quarter. Had I closely analyzed my Pro forma statement in quarter two I would have seen that I had set my demand for my sales team at zero and overspent in production. My revenue was not enough to cover the cost of production and overhead. Just by doing the simple math using my Pro-forma sheet I could have quickly assessed that the Revenues of +$990,900 would not cover the Cost of production-$576,338 and an excess capacity cost of -$491,524. Q1 my largest investment was in $470,000 in the sales office. I chose to open offices in Tokyo and New York since the market research showed this would be the best investment for my targeted segments Traveler and Mercedes. I invested $120,000 in market research, which was a very important resource throughout the simulation I wanted make sure I didn’t overspend during the first quarter...
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...Snapple – The best stuff on earth Snapple was founded in 1972 East Meadow NY as Unadulterated Food Products. It had a huge growth spurt with case sales doubling in 1990. Sales reached $516Mand had a return of 195.8%. Quaker Oats & its Strategy Quaker Oats is an American food conglomerate. The story of Quaker Oats’ success is one of a company led by a strong management effectively growing in the face of increasing competition and economic cycles through internal and inorganic growth. Its non-beverage businesses were growing only at 1% in real terms. It had a 10% growth target set, and that target was accomplished through acquisition strategy. To maintain this growth rate the management felt that Snapple presented highly compatible product offering. Overall, the company has used a growth through acquisition strategy and diversification. Diversity is necessary to secure the whole company’s survival. In addition, Quaker Oats thought they had the resources to make Snapple expand internationally. Gatorade Acquisition - A Huge Success Purchase of Gatorade in 1983 (as part of the Stokely-Van Camp purchase) catapulted Quaker to the top of an untapped beverage segment that, to this day, dominates 80% of the market. This deal was vital to Quaker’s long-term success. The company attributed success to its global sales and marketing team. Quaker acquired Gatorade in 1983 for $238M. Since it experienced a 22% compound growth rate with US Sales going from $122M in 1984 to $1.2B...
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...plan. I will also provide a rationale for my plan, (b) the form of my business and the benefits it offers my particular business, and (c) a chart of accounts specific to my business, including a rationale as to the selection of each account, the sources of those resources (liabilities and equity), the sources of revenue and expenditures that I expect to incur to earn those revenues. I will build a detailed chart that includes business units, divisions, product lines, etc.) Next, I will analyze whether I will be required to use GAAP or IFRS accounting methods and how the IFRS/ GAAP convergence will impact my business. I will then seek ways to incorporate any changes into my books and records. Then, I will prepare a pro form balance sheet and an income statement providing the assumptions made and support for these valuations. Fourthly, First Steps Educational Program, I will recommend two...
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...Weatherfield Limited trades as The Private Clinic (TPC), one of the longest established private hospitals in the city.TPC has 220 beds in addition to a well established Daycare and Outpatient clinic, generating annual revenues in excess of €60 million per annum.TPC primarily bills the main health insurer in the country, as well as three smaller other healthcare insurers who represent just 5% of the total billings to the insurers. TPC also has a small number of private uninsured patients, many of them people from outside the country. TPC bill their insurer customers as soon as the bills are ready to submit, with all medical details and doctor sign offs in place, and the insurers pay twice a month, with a very detailed remittance advice specifying which claims have been paid (and to what extent, and which claims have been cut in part, rejected in full or deferred seeking further information or details). Approximately 90% of claims by number (but slightly less by value) are paid on time by the insurers (many of them at an agreed fixed price for the more typical procedures), but once a claim has been queried or rejected it can take up to nine months or more to be resolved and paid. The insurers will pend, query or reject claims for a variety of reasons, quite typically because the person is no longer a valid insured member but also because the insurers believe the treatment that the member has received was excessive or unjustified and thus unduly expensive for the insurer. TPC...
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...develop a series of pro forma, or projected, financial statements. Based on the projected statements, any firm is able to estimate its future level of Receivables inventory, payables, and other corporate accounts as well as its anticipated profits and borrowing requirements. A brand new company needs to have a sales projection plan, production plan, to put together a pro forma income statement a new company doesn’t have a prior balance sheet, a income statement, cash balance sheet and other budgets plans would be used to secure operating capital and loans from the bank. I as a new company would need to know how much product we need to make, how much each item cost to make, and how much revenue is expected. A family owned company is in the same boat, sales projection, production plan, cash balance and any other plans are needed in this situation. I really don’t see any difference in this situation then a new business. Knowing a family business has a sales plan and budget sheets, is necessary to get lending from the bank and for planning on how to pay personal monthly bills. A long standing company is no different, and then the previous two companies otherwise it would be long standing. Pro forma income statements, cash budget, and other budgets used together equal a pro forma balance sheet are used by business small and large to obtain lending, set production levels, forecast sales, and forecast profits. What financial forecasting is looking at is the pro forma balance sheet this...
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...operating margins shrink in an attempt to acquire 20% market share by 1990. To accomplish this, MCI will need to infuse huge capitals into their business. As per the pro forma statements, MCI would need significant amounts of capital to finance their plans. The figures range from $890 million in 1984 to $2.76 billion in 1987. Looking back at history, MCI has been known for issuing stock and debentures/convertible debentures. To finance their forecasts, MCI will begin by selling $481 million in common stock in 1984 the same way it did in the past. The share price is currently $47 per share and MCI needs to capitalize on the high value while it can. From 1985 to 1989, MCI will sell convertible debentures. A Convertible debenture is a type of loan issued by a company that can be converted into stock by the holder and, under certain circumstances, the issuer of the bond. The debentures allow investors to turn them into stock while at the same time allow MCI to issue more debt. Thus, each year from 1985 to 1989, MCI can take on more debt while converting older ones. The additional cash will provide for MCI’s growth plans and allow them to compete in a dynamic market. Pro Forma Statements Pro Forma statements are helpful in estimating future inflows and outflows. In any growing company, pro forma statements are vital in constructing future plans for growth. For MCI, we made assumptions based off growth in the case book. Also, we assumed that the economy was going to...
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...Pro Forma Statements are “financial statements that a company prepares to consider the effects of potential activity” (Pro Forma Statement, 2013). It is a financial statement showing the forecast or projected operating results and balance sheet, as in pro forma income statements, balance sheets, and statements of cash flows (Pro Forma Statement, 2013).XYZ Company, Inc. is looking to expand their organization in the next five years. The following paper will review XYZ Company’s five-year financial plan to expand their organization. The pro forma income statement for XYZ Company, Inc. is a five-year projection that accounts for a 10% increase in gross sales each of the five-years. The projections for XYZ Company, Inc. show that the break-even point will occur in 2013 when net sales equal $1,747,698, gross profits equal $697,428, and total operating expenses equal $285,850. In 2014 the break-even point will equal $767,170.80 gross profits,$1,922,467.80 net sales, and $288,370.17 total operating expenses. In 2016 equal$2,326,186.04 net sales, $914,822.99 gross sales, and $349,451.05 total operating expense. In 2018 net sales will equal $5,140,871.14, gross sales equal $205,120,758.49and total operating expenses equal $430,386.70.In order for XYZ Company, Inc. to expand they need to increase current assets by$10,000. This is to increase the likelihood of needed finance. The expansion is costing$250,000 meaning the organization will need to utilize $175,000 in other forms of equity...
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...Running head: ANALYZING PRO FORMA STATEMENTS Analyzing Pro Forma Statements Bridget Harvey and Keva Paul FIN/571 February 09, 2015 Ms. Wendy Thomas 1 ANALYZING PRO FORMA STATEMENTS 2 Introduction The Home Depot is the world’s largest home improvement retailer. The tagline for The Home Depot is “More savings more doing that’s the power of The Home Depot.” The catchy and recognizable tagline can be heard on nearly every TV and radio station in the United States. The Home Depot realizes that in order to maintain its title as the world’s largest home improvement retailer the company will need more than its catchy tagline. Therefore, The Home Depot has decided to extend the time in which small household appliances are available to its customers. Analysis of Pro Forma Data The Home Depot does not usually sell small house appliances like coffee pots, toasters, mini convection ovens, blenders, and irons through the year. The mentioned small appliances were only sold during the Christmas season. The Home Depot has decided to extend the time frame in which small appliances could be purchased. In 2014, The Home Depot sold the small appliances from the Christmas season until March 2015. The extension of the availability of the small appliances increased sales revenue by %. The increase in revenue prompted The Home Depot to employ the idea for the 2015 Christmas season until March 2016. There was an increase in revenue of % for 2016. The same model was used...
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