Premium Essay

Pro Forma Statements

In: Business and Management

Submitted By Yqgarrett
Words 396
Pages 2
Quinniece Garrett
Individual: Pro Forma Statements

Comprehensive Problem: Landis Corporation

The Landis Corporation had 2008 sales of $100 million. The balance sheet items that vary directly with sales and the profit margin are as follows: Percent
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5%
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . 15
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Net fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . 40
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . 15
Accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Profit margin after taxes . . . . . . . . . . . . . . . . . . 6%

The dividend payout rate is 50 percent of earnings, and the balance in retained earnings at the end of 2008 was $33 million. Common stock and the company’s long-term bonds are constant at $10 million and $5 million, respectively. Notes payable are currently $12 million.
A- How much additional external capital will be required for next year if sales increase 15 percent? (Assume that the company is already operating at full capacity.)
B- What will happen to external fund requirements if Landis Corporation reduces the payout ratio, grows at a slower rate, or suffers a decline in its profit margin?
Discuss each of these separately.
C- Prepare a pro forma balance sheet for 2009 assuming that any external funds being acquired will be in the form of notes payable. Disregard the information in part b in answering this question (that is, use the original information and part a in constructing your pro forma balance sheet).

Answer:
A
Sales increase = 100 * 15% = $15 million
Asset increase = 5% + 15% + 25% + 40% = 85%
Liabilities increase = 15% +10% = 25%
The necessity for External Financing = 15 * 85%...

Similar Documents

Premium Essay

Analyzing Pro Forma Statement

...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)....

Words: 670 - Pages: 3

Premium Essay

Analyzing Pro Forma Statements

...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....

Words: 789 - Pages: 4

Premium Essay

Analyzing Pro Forma Statements

...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....

Words: 1327 - Pages: 6

Premium Essay

Analyzing Pro Forma Statement

...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....

Words: 628 - Pages: 3

Premium Essay

What Is a Pro Forma Income Statement

...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.”...

Words: 382 - Pages: 2

Premium Essay

Analyzing Pro Forma Statements Paper

...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....

Words: 851 - Pages: 4

Premium Essay

Week+3-Assignment-Pro+Forma+Statements

...------------------------------------------------- Top of Form color-code matches: default mode: auto-navigation: Save Cancel Bottom of Form ------------------------------------------------- Top of Form * ------------------------------------------------- Word Count: words * ------------------------------------------------- Percentage: % or Cancel Bottom of Form * preferences Document Viewer Turnitin Originality Report * Processed on: 22-Dec-2012 10:11 AM CST * ID: 294959697 * Word Count: 227 * Submitted: 1 Week+3-Assignment-Pro+Forma+Statements[1] By Robert Oxendine   Similarity Index 41% What's this? Similarity by Source Internet Sources: 41% Publications: 0% Student Papers: N/A include quoted include bibliography exclude small matches download refresh print mode: 18% match (Internet from 8/2/10) http://www.jiskha.com 9% match (Internet from 4/3/10) http://sprott.carleton.ca 8% match (Internet from 2/18/12) http://www.coursehero.com 6% match (Internet from 9/30/10) http://studentoffortune.com ------------------------------------------------- Week 3-Assignment-Pro Forma Statements The Landis Corporation A.) ( ) Spontaneous Assets = 5% + 15% + 25% + 40% = 85% Spontaneous Liabilities = 15% + 10% = 25% RNF = ( ) ( ) = .85 ($15 million) - .25 ($15 million) - .06 ($115) (1 -.5) = $12.75 million - $3.75 million - $3.45 million = $5.55 million B.)...

Words: 630 - Pages: 3

Premium Essay

Pro Forma Financial Statements for Walt Disney Co.

...#14- Walt Disney Company: Pro Forma financial statements: income statement, balance sheet, cash flow statement, and applicable financial ratios with a baseline year and three years into the future. Income Statement 12/31/2014 12/31/2015 Percent Change Revenues $48,813,000 $52,465,000 1 7.48% Cost of Goods Sold 26,420,000 28,364,000 1 7.36% Gross Profit 22,393,000 24,101,000 1 7.63% Operating Expenses 37,378,000 39,294,000 1 5.13% EBIT (14,985,000) (15,193,000) 1 1.39% Interest Expense - - ####### #VALUE!...

Words: 870 - Pages: 4

Premium Essay

Financial Forecasting

...Lecture notes chapter 4 Financial Forecasting                           Author's Overview   Developing pro forma statements is a fairly involved process.  However, the rewards to students are high in terms of understanding the interaction of accounting data and financial forecasting.  The development of pro forma financial statements is an integrative exercise, so there is little reward for a halfway approach.   The percent-of-sales method, presented at the back of the chapter, is a second approach to financial forecasting. It has the virtue of being easily understood and quickly mastered, but it does not have  the full validity of developing pro forma statements.   It is really a matter of instructor preference.                                                                 Chapter Concepts   *          Financial forecasting is essential to the strategic growth of the firm.   *          The three financial statements for forecasting are the pro forma income statement, the cash budget and the pro forma balance sheet.   *          The percent-of-sales method may also be used for forecasting on a less precise basis.   *          The various methods of forecasting enable the firm to determine the amount of new funds required in advance.   *          The process of forecasting forces the firm to consider seasonal and other effects on cash flow.                                                Annotated Outline and Strategy   I.         ...

Words: 1382 - Pages: 6

Premium Essay

The Great Atlantic and Pacific Tea Company

...There are pros and cons associated with pro-forma reporting practices. One benefit is that these earnings exclude anything that can distort a company’s operating performance. In many cases, restructuring costs are a one-time expense, and taking such a huge hit in one period can distort the financial statements. Pro-forma earnings can provide investors with a better way to predict future earnings and performance. Furthermore, pro-forma...

Words: 715 - Pages: 3

Free Essay

Pro Forma

...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. The point of the pro forma statement is to give a better and clearer view of the operations within the company. The Christopher Radko company in my pro forma statement continued to make money and did not suffer a significant loss on the new...

Words: 297 - Pages: 2

Premium Essay

Analyzing Proforma

...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....

Words: 696 - Pages: 3

Premium Essay

Paer Story

...Cash planning requires preparation of the cash budget, while profit planning involves preparation of a pro forma income statement and balance sheet. The text illustrates through example how these budgets and statements are developed. The weaknesses of the simplified approaches (judgmental and percent-of-sales methods) of pro forma statement preparation are outlined. The distinction between operating cash flow and free cash flow is presented and discussed. Current tax law regarding the depreciation of assets and the effect on cash flow are also described. The firm’s cash flow is analyzed through classification of sources and uses of cash. The student is guided in a step-by-step preparation of the statement of cash flows and the interpretation of this statement. This chapter ties in every person’s need to set goals, estimate income, and budget expenditures to the firm’s need to effectively engage in these activities. ( Answers to Review Questions 1....

Words: 5923 - Pages: 24

Premium Essay

Return on Equity Problems

...An increase of sales to $5,192 is an increase of: Sales increase = ($5,192 – $4,400) / $4,400 Sales increase = .18 or 18% Assuming costs and assets increase proportionally, the pro forma financial statements will look like this: Pro forma income statement Pro forma balance sheet Sales $ 5,192 Assets $ 15,812 Debt $ 9,100 Costs 3,168 Equity...

Words: 2952 - Pages: 12

Premium Essay

Monmoth Case Solution

...Orrstown Financial Analysis Report -----Pro forma forecasting Contents 1 Intoduction 1 2 Balance Sheet Pro Forma 2 2.1 Asset Forecasting 2 2.2 Liabilities Forecasting 4 2.3 Equity 5 3 Income Statement Pro Forma 6 4 Statement of Cash Flow Pro Forma 11 5 Financial Ratios Pro Forma 12 Abstract Based on the former two analysis reports, this assignment focuses on forecasting financial statements for 2013-2017. Every subject in Balance Sheet, Income Statement, and Statement of Cash Flow is predicted by using pro forma analysis. Before that, several assumptions are made for the convenience of forecasting. Furthermore, financial ratios for the upcoming five years are also calculated with the numbers provided in the three pro forma financial statements. Key words: Pro forma, financial statements forecasting 1 Intoduction The method that is using in this assignment is called pro forma financial analysis. Pro forma is the forecast financial statements based on either anticipated future events or potentially changing business performance in upcoming periods. This is in contrast to regular financial statements that are financial summaries on a business's past. Businesses use pro forma statements to assist in their planning activities, both short term and long term. Normally, a pro forma forecasting will cover three to five years into the future; and five-year pro forma can provide a fuller view into how a business might fare under various assumptions....

Words: 3431 - Pages: 14