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Pro Forma Income Statement Analysis

This document contains information about two different methods for preparing pro forma financial statements: the percent-of-sales method and the judgmental approach. It includes an example income statement prepared using the percent-of-sales method showing calculations for revenue, costs, expenses, profits and dividends. It also shows the judgmental approach involving estimating individual line items as a percentage of total sales or based on prior period amounts and calculating total assets and the external funds requirement.

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16 views1 page

Pro Forma Income Statement Analysis

This document contains information about two different methods for preparing pro forma financial statements: the percent-of-sales method and the judgmental approach. It includes an example income statement prepared using the percent-of-sales method showing calculations for revenue, costs, expenses, profits and dividends. It also shows the judgmental approach involving estimating individual line items as a percentage of total sales or based on prior period amounts and calculating total assets and the external funds requirement.

Uploaded by

JP
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

a Percent-of-Sales Method

A Pro Forma Income Statem


Cost of goods sold - Fixed Cost 2,750,000 - 1,000,000 Method, for Provinscial Im
Sales 5,000,000 35% Deceme

Operating expenses - Fixed Cost 850,000 - 250,000 Sales Revenue


Sales 5,000,000 12% Less: Cost of goods sold (35% o
Gross profits
Less: Operating expenses (12%
Operating profit
Less: Interest expense
Net profits before taxes
Less: Taxes (0.40 x 1,730,000)
Net profits after taxes
Less: Cash dividends (0.40 x 1,0
To retained earnings
 
b Judgmental Approach A Pro Forma B

(6) Cash 200,000 x 2 400,000 Asset


(8) Accounts receivable (625K / 5M) x 6M 750,000 Cash
(9) Net fixed assets 1.4M + 356K - 110K 1,646,000 Marketable securities
(6) Inventories 500,000 x 2 1,000,000 Accounts receivable
Inventories
(8) Accounts payable (700K / 5M) x 6M 840,000 Total current assets
(10
) Taxes payable 692,000 x 0.20 138,400 Net fixed assets
(8) Other current liabilities (5K / 5M) x 6M 6,000

Retained Earnings, beg 1,375,000


Add: net Profit after tax 1,038,000
Less: Cash Dividends (415,200) 1,997,800
Total assets
 
c Using the judgmental approach, the external funds requirement is $263,800. (4,021,000 - 3,757,200)

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