PRO FORMA FINANCIAL STATEMENTS

~ A forecast of what a frm expects its income statement and balance sheet to look
like a year or two ahead.
*WHY do frms use these pro forma fa!"a# statemets$
~ Occasionally, frms use these statements to communicate their plans to outside
investors, but most of the time managers construct these statements for internal
planning and control purposes.
*WHAT pro%e!t"os do frms ma&e$
a.) sales volume d.) working capital needs
b.) profts e.) sources of fnancing
c.) fxed assets reuirements
*WHAT are the t'o most !ommo sa#es fore!ast approa!hes$
!.) "op#down sales forecast
~ A sales forecast that relies heavily on macroeconomic and industry forecasts. A
frm could use a statistical model or subscribe to a forecast made by frms
speciali$ing in economic modeling. %enior managers establish frm ob&ectives for
increased sales. 'ivisions then receive goals to collectively achieve the increased
sales goal.
(.) )ottom#up sales forecast
~ A sales forecast that relies on the assessment by sales personnel of demand in
the coming year on a customer#to#customer basis. %imply stated, it starts with
talking to customers. *stimates from each division are developed and passed up to
senior managers to create an overall forecast for the company.
*WHAT "s per!eta(e)of)sa#es method ad "ts #o("! for !ostru!t"( pro
forma statemets$
~ +ercentage#of#sales method is the constructing of pro forma statements by
assuming that all items grow in proportion to sales. "he logic behind it for
calculating pro forma statements is that most accounts increase or decrease as
sales increase or decrease.