Analyzing Pro Forma Statements
Analyzing Pro Forma StatementsPeter MunsonFIN/5717/6/2015Professor Moses PidillaAnalyzing Pro Forma StatementsAnalyzing Pro Forma StatementsOne of the most important parts of planning your business is creating a Pro Forma Financial Statements. Knowing how to work with a Pro Forma Financial plan will help develop a successful business. Success derives from planning ahead, by knowing where the revenue is coming from, how much revenue the business has to work with and what the company will be spending their money on in the future. Without financial protection plans, a business will never know whether their making or losing money. So it is essential for proper planning.Helping a Business grow:•   Know your business model inside and out. You cannot create future financial projects for the company if you do not know where your money is coming from, what the company is bringing in and what cost factors are affecting the company.•   Know your expenses, which means all of your expenses and do not forget to include them in the projection.•   Define your projections with a clear and well-defined statement. No one can predict the future but with a clear and well-defined statement the company and its investors will have the proper tools to work with toward being successful in the future.
•   Use backup data. Use the data from your company’s past performance or information found from other similar companies and competitors. Study their margins, sales, expenses and growth rate. Market research is a must because any potential investors will want to see all facts and figures that will back up projections.•   Projection scenarios are important perceptions when understanding how fragile the company may be when it reaches the bottom line. It’s important to know how far down the financial ladder a company can go before getting itself into trouble. It is also important to have strategies that will take the company in a positive direction and how to stay moving in that direction.The following financial figures will demonstrate how the Pro Forma process works for a five-year projection. Information to be used in the form of facts and figures has been provided by (UOPX, 2013). The Pro Forma statement shows a rise from five years of historical data, and sales forecasted for 20XX. The information collected shows an increase in sales because of two factors; introduction of a new product and an increase in product capacity. When there are increased sales, fixed assets are obtained which allows excess cash, which is derived from the following:Profit and Loss StatementIncome Statement | 20XX | % Ratio to the Sales | 20X1 | 20X2 | 20X3 | 20X4 | 20X5 |Revenue (net) | $1,747,698 | 100.0% | $2,097,238 | $2,306,961 | $2,537,657 | $2,791,423 | $3,070,566 |Cost of revenue | $1,050,270 | 60.1% | $1,260,324 | $1,386,356 | $1,524,992 | $1,677,491 | $1,845,240 |Gross Profit | $697,428 | 39.9% | $836,914 | $920,605 | $1,012,665 | $1,113,932 | $1,225,325 |Selling expense | $125,000 | 7.2% | $150,000 | $165,000 | $181,500 | $199,650 | $219,615 |Operating expenses | $285,850 | 16.4% | $343,020 | $377,322 | $415,054 | $456,560 | $502,216 |