Order ID:89JHGSJE83839 Style:APA/MLA/Harvard/Chicago Pages:5-10 Instructions:
Process of Creating Proforma Statements
Running head: PROFORMA DOCUMENTS 2
PROFORMA DOCUMENTS 2
Your Name
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BUS 522:
May 23, 2019
Proforma Balance Sheet and Income Statement for a Hypothetical Company
Facts and Assumptions Year 2015 2016 2017 Net sales $32,450 Growth rate in sales 35% 30% Cost of goods sold/net sales 86% 86% Gen., sell., and admin. expenses/net sales 12% 11% Long-term debt $ 4,670 $ 4,203 $ 3,783 Current portion long-term debt $ 500 $ 500 $ 500 Interest rate 10% 10% Tax rate 45% 45% Dividend/earnings after tax 50% 50% Current assets/net sales 29% 29% Net fixed assets 15,680 $ 14,896 $ 14,151 Current liabilities/net sales 14.5% 14.4% Owners’ equity $10,500 INCOME STATEMENT Year 2015 2016 2017 Net sales $ 43,808 $ 42,185 Cost of goods sold 37,674 36,279 Gross profit 6,133 5,906 Gen., sell., and admin. exp. 5,257 4,640 Interest expense 470 1,072 Earnings before tax 406 194 Tax 183 87 Earnings after tax 223 107 Dividends paid 112 53 Additions to retained earnings 112 53 BALANCE SHEET Current assets $ 12,704 $ 12,234 Net fixed assets 14,896 14,151 Total assets 27,600 26,385 Current liabilities 6,352 6,075 Long-term debt 4,203 3,783 Equity 10,612 10,665 Total liabilities and shareholders’ equity 21,167 20,522 EXTERNAL FUNDING REQUIRED $ 6,433 $ 5,863 Process of Creating Proforma Statements
Proforma documents such as income statement and balance sheet are important for companies to assist them in projecting the operations of the company. The Pro forma income statements provide an important benchmark or budget for operating a business throughout the accounting period. Similarly, the proforma balance sheet aids in estimating the future assets and liabilities of the company. In the creation of the proforma documents, the projected growth of company operations is estimated which are then used for projecting. For instance, the net sales of the above hypothetical company are estimated to be 35% and 30% for the period of 2016 and 2017 respectively. Thus, using these estimates, the projections are made for the 2016 and 2017 net sales respectively (Stickney, C. P., Brown, P., & Press, D., 2014).
For the case of the hypothetical company above, the external funding required for the year ending 2016 is $6,433 while external funding amounting to $5,863 is required in 2107. Therefore, the company requires these funding to enable it to operate efficiently without any cash shortages in meeting its obligations. The funding also helps the company undertake its growth projects hence increase its sales and thus profits. The internal resources of the company are also used for other purpose since the external funding helps to run other necessary projects which may have required to use of internal resources. Also, the company gains access to expert advice from its external financiers since they are also interested in the growth of the firm’s profits (Arnold, T., & Eisemann, P. C., 2012). A good image of the company is that external funding decrease in 2017 as compared to 2016, hence resulting to increase the ownership of the shareholders of the compared because less proportion of company assets are owned by external financiers.
References Arnold, T., & Eisemann, P. C. (2012). Debt Financing Does NOT Create Circularity Within Pro Forma Analysis. Stickney, C. P., Brown, P., & Press, D. (2014). Financial statement analysis. Fort Worth, TX: Dryden.
RUBRIC
Excellent Quality
95-100%
Introduction 45-41 points
The background and significance of the problem and a clear statement of the research purpose is provided. The search history is mentioned.
Literature Support
91-84 points
The background and significance of the problem and a clear statement of the research purpose is provided. The search history is mentioned.
Methodology
58-53 points
Content is well-organized with headings for each slide and bulleted lists to group related material as needed. Use of font, color, graphics, effects, etc. to enhance readability and presentation content is excellent. Length requirements of 10 slides/pages or less is met.
Average Score
50-85%
40-38 points
More depth/detail for the background and significance is needed, or the research detail is not clear. No search history information is provided.
83-76 points
Review of relevant theoretical literature is evident, but there is little integration of studies into concepts related to problem. Review is partially focused and organized. Supporting and opposing research are included. Summary of information presented is included. Conclusion may not contain a biblical integration.
52-49 points
Content is somewhat organized, but no structure is apparent. The use of font, color, graphics, effects, etc. is occasionally detracting to the presentation content. Length requirements may not be met.
Poor Quality
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37-1 points
The background and/or significance are missing. No search history information is provided.
75-1 points
Review of relevant theoretical literature is evident, but there is no integration of studies into concepts related to problem. Review is partially focused and organized. Supporting and opposing research are not included in the summary of information presented. Conclusion does not contain a biblical integration.
48-1 points
There is no clear or logical organizational structure. No logical sequence is apparent. The use of font, color, graphics, effects etc. is often detracting to the presentation content. Length requirements may not be met
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