Financial statements that are prepared by a company to consider the effects of potential activity is considered a pro forma statements. A financial statement shows the projected or forecast of operating results and balance sheet, and statement of cash flows. The company XYZ Company Inc. is planning to expand their company in the next five years. This paper will review and discuss XYZ’s Company’s five year plan to expand to their organization.
The XYZ Companies pro forma income statement is projected for the next five years which accounts for a 10% increase in gross sales for each of the five years. Financial managers use Proforma statements to assist financial managers to plan accordingly in terms of the company’s financial needs. By acquiring the company’s future income statement and balance sheets, managers can determine how much financing is needed and when it is needed. The Proforma analysis has become the proven tool that can be instrumental for general managers in the planning of employment intensities, inventory and problem solving issues. Proforma can also be used for more than just a forecasting tool. It can also be used for creating mid-stream corrections, evaluate variances, gauge weaknesses, strengths and evaluating performance during the budgeting period.
By forecasting Proforma statements are created to predict balances at a certain date followed by combining them with a financial statement format. Acquiring the forces that influence them, one can determined how account balances are forecasted and project how the accounts may be influenced. The following is used to illustrate the ProForma’s five year projection process for XYZ’s Company.
Revenue will increase twice in the year 2011 and afterwards continue to increase 10% in the next year. Cost of revenue will be based on total sales percentage. Presented is the Performa statement of the organization for the next five years. XYZ Company Inc.: 2011|2012|2013|2104|2015
It has been established that in the above Proforma balance sheet one has assumed that current liability and current asset has increased in the ratio of sales. In addition, the company has taken on a loan to meet the capital expansion as well as working capital’s needs.
University of Phoenix, (2015) “Analyzing Pro Forma Statements” retrieved from https://newclassroom3.phoenix.edu/Classroom/#/contextid/OSIRIS:44656217/context/co/view/activityDetails/activity/53c06956-87e9-4050-8ecc-815e914705e0/expan
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