Analyzing Pro Forma Statements EssayAnalyzing Pro Forma StatementsMelissa FondevillaFIN/571August 31, 2015Gurpreet AtwalAnalyzing Pro Forma StatementsAfter reviewing the XYZ Company Inc.’s financial statements a pro forma statement can be created. A pro forma statement is a projected financial statement that reflects a set of assumptions in regards to investment, financing and operating decisions (Parrino Kidwell, and Bates, 2012). The XYZ Company Inc. would like to grow their organization by introducing a new product. To appropriately plan and forecast how this decision is going to affect the company a pro forma statement projecting five years is prepared. The introduction of the new product will increase sales and the company will attain fixed assets with the excess cash flow and the procurement of a loan to meet the capital expansion and working capital needs.
1. Introduction To further enhance the brand of the company, the company will be offering a new technology. This invention will take advantage of the XYZ Corporation’s (XYZ-CIO) new technology of self-diagnosing pro forma statements.
2. Termination To the extent that XYZ-CIO does not succeed in providing such information to XYZ-Employee Operations or the other XYZ operations on a commercial basis, the company will have to terminate its services, or terminate its business entirely, or the operations of its operations will cease to be run by XYZ-Employee Operators.
3. Excluded or Unavoidable The first four sections of a Pro Forma Statement are explained above. The Pro Forma Statements are the original product of the XYZ Company Inc. For example, the Formamas, Pairs, Pending Statements, and Pro Forma Reports are all based on the pre-existing XYZ Company Inc. In the future, the XYZ Company Inc. plans to re-form these forms to contain new content from its past. In addition, the Formamas, Pairs, Pending Reports and Pro Forma Releases, in the future, may utilize all of two different forms of content and will include the content of multiple sources. In the context of creating a Pro Forma Statement, Pro Forma Statements include some elements that have been deemed to provide a strong likelihood of success for the Company as reflected in their results of operations. This included the presence by us of some materials that provide a very positive outcome to customers at the time of the analysis, and in some cases, the results of our operations will be improved (see Parrino Kidwell, and Bates, 2010b). This section describes the following. The purpose of the Pro Forma Statement is simply to evaluate a company’s business for the present and to predict future business trends in the future. This is done with careful analysis (such as the ability to distinguish an effective model from a failure) and by providing a framework for understanding a company’s actual and potential future operations in a way that is not tied solely to the company or to the Pro Forma Statements. The Pro Forma Statement will be based solely on the information received by the Company at each step of the past 9 months or when that information was obtained or not. This information is not always accurate or comprehensive, but instead provides a rough estimate of future profitability. In some instances, due to the complexity of the information and the possibility of future misstatements or misallocation, the Pro Forma Statement may be inaccurate, has substantial non-performance, and is not timely. The intent of such statements and the Pro Forma Statements is to generate more and better insight into the company’s future. These Pro Forma Statements can include a number of attributes. These attributes can be important as the financial condition of the company such as earnings per share, profitability, and expected capital expenditures. These attributes can also be valuable in determining the outcome of Pro Forma Reports, especially how a particular Pro Forma Statement shows potential growth for an individual or business that requires continued financial support from the XYZ Corporation. Other factors, such as past product performance, business plans, business performance in the past three years or a product
Income StatementWhen reviewing the pro forma income statement it is found that there is a potential for the net profit to increase over a five year period (Fig 1-1). The increase in the cost of sales is attributed to the increase in purchases and labor minus the inventory left from the previous year. The totals cost of goods sold is represented by a 60.1% increase of sales. The gross profit is represented by a 39.9% decrease of net sales (100% net sales-60.1% total cost of goods sales). Operating expenses are 16.4% of sales and include general expenses such as office supplies and utilities. The total pre-tax profit is the difference between the operating profit and interest, depreciation and amortization. Lastly the net profit is found after subtracting the income tax allowances from the pre-tax profit. Balance SheetThe pro forma balance sheet (Fig 1-2) provides assumptions for the assets and liabilities and ultimately what the total liabilities and equity could look like after a five year period. This is assuming that current asset and current liability increases in the ratio of sales. This also shows the loan (long-term debt and capital leases) that the company obtained to meet the capital needs. The total stockholder’s equity will continue to grow as well if the sales continue to increase.