...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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...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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...Analyzing Pro Forma Statements Paper Gregory Curry FIN/571 April 22, 2015 CRISTINA MARINE Analyzing Pro Forma Statements Analyzing Pro Forma Statements can be used internally or externally to determine how financially stable a company is whether International or within the USA, ratios play a key role in determining how a company is doing financially either for the good or the bad or indifferent. I we will use three common ratios to determine how financially stable from how Shimizu International and Lexmark US based company balance sheets with their business information is doing these last three years. Balance sheets from Shimizu International and Lexmark, companies no matter the industry no company wants a current ratio less than one because this suggests that the company has more liabilities than assets meaning that in the short run they will be more likely not able to pay their debts. This is why “the current ratio is a popular financial ratio used to test a company's liquidity also referred to as its current or working capital position by deriving the proportion of current assets available to cover current liabilities” (Richard Loth, 2015). The figures for both Shimizu International and Lexmark companies will display their current ratios from 2012, 2013 and 2014. It's takes time to convert a company's working...
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...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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...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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...Analyzing Pro Forma Statements Christopher Radko has been in business for thirty years making blown glass Christmas ornaments. They have expanded their line to include snow globes and cookie jars and even a line of jewelry. I propose that Christopher Radko market a new product to their collectors; a home décor line that showcases their style. This line would include throw pillows, rugs, paintings and tabletop accent pieces. Pro Forma statements are hypothetical assumptions of a company for a time span, in this case five years. Taking an already successful company and adding to the line can be both a good idea and tricky because the customer base can split two ways. They can either decide that they love the addition and buy it or become upset at the perception that the company is changing its product line. A pro forma statement can include and exclude whatever the company feels is relevant or irrelevant; onetime expenses are usually not used in pro forma statements either. The pro forma guidelines are not as strict as generally accepted accounting principles. The calculations that were arrived to for Christopher Radko show how the line would be beneficial if it included a new home décor line. It is worth mentioning that the net income does not reflect one time buys therefore the pro forma statement does not reflect that information. While it was not shown in the attached pro forma statement there are companies that write off merchandise to in attempt to manipulate their outcomes...
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...Papa Geo’s Restaurant Budget Proposal For [2014-2019] BUSN-278 [Term] Professor[name] DeVry University ------------------------------------------------- Table of Contents Section | Title | Subsection | Title | Page Number | 1.0 | Executive summary | | | | 2.0 | Sales Forecast | | | | | | 2.1 | Sales Forecast | | | | 2.2 | Methods and Assumptions | | 3.0 | Capital Expenditure Budget | | | | 4.0 | Investment Analysis | | | | | | 4.1 | Cash flows | | | | 4.2 | NPV Analysis | | | | 4.3 | Rate of Return Calculations | | | | 4.4 | Payback Period Calculations | | 5.0 | Pro Forma Financial Statements | | | | | | 5.1 | Pro Forma Income Statement | | | | 5.2 | Pro-Forma Cash flow Statement | | | | 5.3 | Pro-Forma Balance Sheets | | 6.0 | Works Cited | | | | 7.0 | Appendices | | | | | | 7.1 | Appendix 1: [description] | | | | 7.2 | Appendix 2: [description] etc | | * 1.0 Executive Summary 1.0 Executive Summary * Papa Geo’s an Italian restaurant will be a start up business which will be located in Orland, Florida. The restaurant will have strong emphasis on quality and will work on low cost strategy which will help in attracting more and more consumers across the place. Being located in the heart of the city and its value pricing strategy, the company will be able to attract the large junk of consumers. The company will not compete with the established international brands but will make its own image with...
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...Analyzing Pro Forma Statements FIN 571 Stacey Pitcher April 20, 2015 Analyzing Pro Forma Statements XYZ Company, Incorporated (“XYZ Company”) was incorporated in October 1st 2013 and started trading in early January 2014. XYZ Company specializes in growing and supplying organic foods in the Cambridge area in Massachusetts and over the last 12 months has had significant success in penetrating the Cambridge market especially as the benefits of organically produced foods gain traction in the New England area and throughout the United States. Overall, demand for organic foods in the US grew by an average of 11% in 2014 and based on a detailed analysis of the Cambridge market, XYZ Company expects demand to closely track this overall growth rate not only in 2015 but over the next five year period. Initiative The initiative that XYZ Company has decided to implement is a corporate expansion to meet the projected increased demand for organic foods in the Cambridge area over the next five year period. Based on a detailed analysis of the Cambridge market, XYZ Company expects demand to grow by 10% annually over the forecast period. To meet this projected demand, XYZ Company intends to expand its business by taking the following specific steps; 1. Increase its total assets including working capital needs to build up the capacity required to meet the expected increased sales; and 2. Source sufficient funding to finance the planned capacity expansion through a mix of affordable...
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...Analyzing Pro Forma Statements FIN 571 September 11, 2014 Introduction This paper is the analysis of pro forma financial statements. Pro forma statements are forecasted or projected financial statements as a result of financial planning. The financial statements are based on the inputs and assumptions such as percent of sales model in which most of the entries vary directly with the level of sales. The attached excel spreadsheet includes pro forma statements for the next five years. This company decided to invest in the purchase of new equipment to help increase sales. The resulting projections are the focus of this paper. Analysis of pro forma statements will determine if the company requires any external financing to support its planned initiatives. Assumptions supporting each line for forecasted statements This paper covers a five year plan with the basic assumptions for the pro forma statements that the equipment purchase initiative will increase sales by 12% for the first two years, and then 5% for the next three years. The cost of sales including purchases, production and labor, and ending inventory will vary with sales, while beginning inventory comes from prior year ending inventory. Depreciation will increase by $40K for the additional equipment in year one. Fixed assets will not vary from year to year, except for $200K increase in equipment expected in the first year to support sales growth. Retained earnings for the prior year comes from previous year, and...
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...not give a meaningful response. 2. Based on the information in the case and on the results of your calculations in Question 1. prepare a list of Garden State’s strengths and weaknesses. In essence, you should look at the commonsized statements and each group of key ratios (for example, the liquidity ratios) and see what those ratios indicate about the company’s operations and financial condition. As part of your answer, use the extended Du Pont equation to highlight the key relationships. 3. Recognizing that you might want to revive your opinion later, does it appear, based on your analysis to this point, that the bank should lend the requested money to Garden State? Explain. Table 3 CommonSized Balance Sheets for Years Ended December 31 1990 1991 1992 Assets: Cash and marketable securities Accounts receivable Inventory 8.82% 5.13% 30.39 35. 36 3.37 % 30.9 1 50.3 9 83.9 5 22.9 3 6.88 16.0 5% 100. 00% 25.72 48.32 Current Assets Land, buildings, plant, and equipment 74.55% 79.18% 30.78% 27.31% Accumulated depreciation 5.32% 6.48% Net fixed assets 25.45% 20.82% Total assets 100.00% 100.00% Table 4 CommonSize Income Statements for Years Ended December 31 1990 1991 Net sales 100.00% 80.52 82.18 19.48% 17.82% Admin & selling expenses Depreciation 7.30% 0.91 8.11% 0.88% Miscellaneaous expenses 1.16% 1.88% Total operating...
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...FIN/571 Week 4 Analyzing Pro Forma Statements Decide upon an initiative you want to implement that would increase sales over the next five years, (for example, market another product, corporate expansion, and so on). Using the sample financial statements, create pro forma statements of five year projections that are clear, concise, and easy to read. Be sure to double check the calculations in your pro forma statements. Make assumptions that support each line item increase or decrease for your forecast-ed statements. Discuss and interpret the financials in relation to the initiative. Make recommendations on potential discretionary financing needs. Pro Forma Statements This individual assignment presents an initiative that can be implemented to increase sales over the next five years. The purpose of this assignment is to present pro forma statements of five year projections, and to make assumptions that support each line item increase or decrease for the forecasted statements. Furthermore, this assignment will discuss and interpret the financials in relation to the initiative. It will make recommendations on potential discretionary financing needs. Finally, this assignment will present an analysis of the company's short term and long term financing needs, and determine strategies for the company to manage its working capital. In today’s business world it is very important to understand the business environment and create strategies according to market fluctuations. As...
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...A Case Study on O.M Scott & Sons Co. Table of Contents Objective……………………………………………………….…………1 Company Background……………………………………………………1 Ratio Analysis…………………………………………………………….1 Pro Forma Analysis……………………………………………………….3 Sensitivity Analysis……………………………………………………….3 Recommendations for Management………………………………………4 Summary of Case Study…………………………………………………..4 Appendix………………………………………………………………….5 Objective This paper will seek to analyze the financial statements of the O.M Scott & Sons Company during the years 1957-1961, in order to provide readers with a thorough understanding of the various factors that may influence the future success of this business. Additionally, recommendations based on an analysis of their financial statements will be offered for the management of O.M Scott & Sons to implement in the following years. Company Background Headquartered in Ohio, the O.M Scott & Sons Company has operated in the lawn care industry since 1868 and has grown into a successful business with a positive outlook. In fact, management within the company set an ambitious goal of increasing annual growth rate in sales and profits to 25% in the year 1959. According to management, one of the main factors limiting O.M Scott & Sons companies’ growth was the inability for their dealers to carry a sufficient amount of stock for customers. However, company officials feel that their use of a trust receipt program and other decisions will benefit the company’s current financial...
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...Using Budgets and Pro-Forma Statements to Plan Funding: The pro forma statements and budgets were instrumental in determining what additional measures needed to be taken to ensure progress within the company. By reviewing the pro-forma statements I was able to determine that I needed to raise the price of my product due to the fact that the target markets had indicated what they would pay for such product and the cost of production was over whelming the income received from sales. After the first quarter I was able to decide that changes needed to be made to not only the price of each product but additional products needed to be added to meet the needs of specific target areas. I was also able to determine by analyzing the budget and pro forma statements that I was missing out on key sales by not producing enough units. In the beginning I was concerned with keeping production costs minimal by having little staff and low inventory. The statements were able to indicate to me that by increasing production, and spending the extra money to do so, I would better be able to meet the supply and maximize profits. The pro forma and budget statements were extremely instrumental in the success and continued growth of my company. I saw the bottom line change significantly as I changed my process based on the statements provided. Improving Operating Efficiency Using Just-in-Time and Lean Operations: Just In Time: The Just In Time approach to manufacturing emphasizes forced problem...
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...1. Evaluate how you utilized budgets and pro-forma statements to ensure adequacy of funds for providing the production capacity you needed to achieve your business goals. a. After completing the 2nd quarter I quickly realized I had positioned my two original products, GC Mercedes, and GC Traveler way outside the parameters of what the consumer demand was. The strategy implemented was one to have high quality products, at a high price point. The strategy was implemented to give the consumer a high quality, high priced product just above the asking price they demanded, however a rebate was offered to make the products priced just below the demanded high price point. The strategy itself should have worked in the real world, however the outside of price points, the following items seemed to be the deciding factors to the eventual pitfall of the 2nd Quarter i. Advertising – Too many articles were placed in an array of magazines. The amount spent on advertising was the maximum, however not enough was spent in the correct placing of magazines. Due to the spreading out in to multiple magazines the products received little penetration, but lacked brand awareness. ii. Salesforce – The plan was to start slowly, build up brand recognition and then hire more sales personal, however due to the high production forecast, and high sales forecast the overall results were never ever going to be attained with a small workforce. Without enough sales people to sell...
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...INTRODUCTION Materiaux Boisvert Ltée sells hardware and building materials to retail customers as well as industrial contractors. Founded in 1992, the company has undergone many management changes. In 1996, the company was purchased by Produits Forestier Saguenay (PFS), whose goals were focused primarily on making money. Tension arose between management and employees, which resulted in the unionization of employees in 1997. Growing tension resulted in three consecutive years of losses for Materiaux Boisvert. In September of 2001, the Lachappelle’s purchased the company. The new owner of the company, Francois Lachappelle, is requesting a line of credit increase contrary to the commercial account manager’s forecast. Francois is calling for an increase in the company’s line of credit from $1.6 million to $2.2 million, whereas previous financial forecasts predicted that Materiaux Boisvert would only need $1.8 million. OFFER We propose that you, Yvan Martinault, should increase in the line of credit to $2 million with a 9% risk premium, deviating from Francois’s initial request for $2.2 million. In order for to grant this increase in their line of credit, three conditions must be met: that the money loaned will be used to reduce Materiaux Boisvert’s payable days from 93 to 65 days, that the loan will be secured by using the company’s receivables and inventory as collateral, and that Materiaux Boisvert will maintain a current ratio of 1.25. ANALYSIS SWOT Analysis (Exhibit 4): ...
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