need help with cash balance vs short/long term debt - due sunday 6/2
Running head: PROFORMA DOCUMENTS 2
PROFORMA DOCUMENTS 2
Your Name
Assignment:
Instructor
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.