Analyzing Pro Forma Statements
Robert R. Gonzales
FIN/571 – Corporate Finance
An initiative has been proposed by one of our executives to expand our product line in an attempt to increase XYZ’s sales. The Finance department has been asked to create Pro Forma financial statements, covering the next five years, to help assess the possible financial impacts of such an endeavor. The Pro Forma statements are based on the current year’s Balance Sheet and Profit/Loss Statement and are projected for a 20% increase in sales each year for the next five years.
Analysis of the Pro Forma statement indicates that sales will increase from the current level of $1,747,698 to $4, 348,832 by the end of the projected year five. After adjusting appropriately, for increased cost to produce sales and taxes on the increased income, we will increase from the present level of $144,335 to $359,153 by the end of year five. The Current Assets accounts of Cash, Accounts Receivable, Inventory, and Prepaid Assets are also projected to increase. Cash is projected to increase from the current amount of $10,535 to $26,190 by the end of the projected year five. Accounts Receivable will increase from the current amount of $27,000 to $67,185 by the end of year five.
Inventory will increase from the current amount of $30,000 to $74,650 by the end of the projected period, and Prepaid Assets will climb from $2,000 to $4,977. Total Fixed Assets are also projected to increase from the current amount of $300,000 to $746,496. Along with the increase of these asset accounts, the Liabilities Account of Account Payable will increase from $5,000 to $12,442 by the end of projected year five.
Based on the Pro Forma projections, increasing sales by expanding the product line will be good for the bottom line. Not only will Net Sales be increased by approximately 250% but Net Income will also be increased by approximately 250%. Cash on hand will also...