Analyzing Pro Forma Statements
Autor: penamart70 • July 20, 2015 • Term Paper • 665 Words (3 Pages) • 1,796 Views
Analyzing Pro Forma Statements
Business Dictionary website (2015) defines pro forma statements as “Projected or estimated financial statements that attempts to present a reasonably accurate idea of what a firm's financial situation would be if the present trends continue or certain assumptions hold true. Pro forma statements are used routinely in preparing ‘what if’ scenarios, formulating business plans, estimating cash requirements, or when submitting financing proposals.” XYZ Company, Inc. is looking to expand its business in the next five years. This paper will present and review XYZ Company’s five-year financial plan to increase the organization’s sales.
Business Highlights
The pro forma income statement for XYZ Company, Inc. is a five-year projection that accounts for a 15% increase in gross sales each one of the five years compared to the previous year. The company has plans to introduce new products on a regular basis to reach a larger market and increase its sales year after year. Increases in sales also mean increases in selling expenses and operating expenses and acquiring some short-term debt to boost productivity. The long-term debt also increases because of the addition of new equipment or expansion. The projections for XYZ Company show that the sales can bring a net profit that may be used to pay off its debt. After the 5- year comparison, the net profit will be double compared to year ending 2014.
Recommendations
One of the recommendations is to follow the pro forma statements as closely as possible. Since, during the five years of the report, there is an increase in sales the business can not only obtain short-term debt to promote products to reach a larger market that in return will increase its sales. By increasing sales during the five-year period, the business can start paying its debts and create a savings plan for any future investments.
Advantages and Disadvantages
Pro forma financial statements have advantages and disadvantages. One of the advantages is that the figures give investors a clear view
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