Case Study Analysis



Case Study Analysis

Pro forma Balance sheet and Income Statement

Pro forma financial statement is a useful tool in for forecasting the future cash flows and growth of the company. It helps in identifying the potential problems that could hinder the progress of the company. This analysis is useful for both company financial and general managers and also the bankers that are supposed to lend significant amount to new companies for start up.

It allows estimating the financing needs of the company and indicates when it shall be required in future time. The financial statements can be forecasted on the basis of specific conditions that are often referred to as assumptions. It is a known fact that total assets is a sum of total liabilities and equity therefore, any imbalance requires managerial attention. This gap can be reduced by arranging adequate financial sources such as loans or stocks.

The pro forma balance sheet is prepared on the basis of forecasting individual accounts at some future date. These balances and accounts are analyzed by identifying the forces that derive its values. These accounts are significantly affected by accounts receivable, accounts payable, credit and sales policies (Clarke and McQueen, 2001).

In context of the case's requirements, a pro forma financial statement shall be helpful in satisfying the bank's concerns pertaining to loan repayments and timely payments of interest charges. This analysis shall help business and bank in determining the amount required to be borrowed and lend.

The pro forma Balance sheet and income statement of aforementioned company is prepared in the basis of following assumptions:

Sales of the company is expected to be 275000 in 2011, 675000 in 2012, 80000 in 2013, 990000 in 2014 and 2015.

Cost of goods sold is expected to be 63% on average of sales for respective years.

Selling expenses is estimated to be 12% of sales.

Marketing and promotion expense is estimated to be 30000 in 2011 only.

Depreciation is recorded on the basis of straight line method for 10 years.

Effective tax rate is expected to be 34%.

The account receivables are expected to be carried for 48 days.

Inventory turnover is expected to be three times in a year.

The accounts payable is expected to be paid within 28 days.

 

 

Pro forma Balance Sheet

 

2011

2012

2013

2014

2015

ASSETS

 

 

 

 

 

Cash

20000

324525

635250

1005900

1487700

Accounts receivable

36164.4

88767.1

105205

130192

130192

Inventory

130000

141750

168000

207900

207900

Land and Building

275000

247500

220000

192500

165000

Total

461164

498017

513205

550592

523092

 

 

 

 

 

 

Equity

235000

235000

235000

235000

235000

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

Accounts payable

13290.4

32621.9

38663

47845.5

47845.5

Notes Payable

90000

90000

90000

90000

90000

Long term loan

250000

250000

250000

250000

250000

Total

353290

372622

378663

387845

387845

 

 

Pro forma Income Statement

 

 

2011

2012

2013

2014

2015

Sales

275000

675000

800000

990000

990000

COGS

173250

425250

504000

623700

623700

Gross Profit

101750

249750

296000

366300

366300

G & A

70000

100000

120000

120000

120000

Selling expense

33000

81000

96000

118800

118800

Marketing and promotional expenses

30000

 

 

 

 

Operating Income

-31250

68750

80000

127500

127500

Depreciation expenses

27500

27500

27500

27500

27500

Operating Income

-58750

41250

52500

100000

100000

Taxation

-19975

14025

17850

34000

34000

Income after Tax

-38775

27225

34650

66000

66000

Cash budget or cash based income statement

A cash budget or plan is prepared for the purpose of assessing and estimating the cash requirement. It facilitates companies to plan adequately for seasonal fluctuations in terms of cash flow. I may also assist company in taking advantage of unpredictable number of discounts from suppliers. The cash budget helps in predicting that how business shall pay suppliers, it also helps banks in assessing the cash position of company and review its loan application on the basis of cash budget. It also estimates growth of company, profitability level, and increment in owners' equity and increment in dividends (Zions Bank, ...