FINANCIAL GOALS & PERFORMA STATEMENTS

Financial Goals & Performa Statements

Five Essential Ingredients

Before putting pen to paper and formulating financial goals, it is important to

weave five key principles into your financial goals plan.Here they are in brief:

1. Create Wealth : Find a way to greatly increase the value of what you do. Ask:

"How can I be worth more to the company I work for?" Or start a new income

stream using modern technology. If you know your subject, and want to build an

income stream with growing, diversified revenues.

2. Maintain Wealth : Include in your financial goals a budget that allows you to

spend less than you earn. Invest whatever is left.

3. Increase Your Wealth : Compounding growth will really increase the speed

with which you attain your financial goals. Reinvest the profits from your past

investments.

4. Protect Your Wealth : Build into your financial goals plan a strategy for

protecting your assets. Search out experts in your area who can give advice and

make sure you are protected against litigation.

5. Enjoy Your Wealth : Don't wait until you have accumulated a fortune before

you start enjoying the proceeds of your financial goals. Reward yourself

occasionally. Experience the joy of giving by sharing a percentage of your wealth

to people or causes you care about.

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MBA LECTURER

FINANCIAL GOALS & PERFORMA STATEMENTS

When these five essential ingredients are woven into any financial goals plan, the

goals become motivating. Such goals touch emotion; they evolve from just an

academic exercise of necessity into a way of life that touches the sense of

abundance.

Financial Goal Setting - Four Steps

There are no hard and fast rules for implementing a financial goal setting plan. The

important thing is to at least do something as opposed to nothing, and to start

NOW.

Here are four steps you can apply to any financial goal setting exercise:

Step 1: Identify and write down your financial goals, whether they are saving to

send your kids to college or University, buying a new car, saving for a down

payment on a house, going on vacation, paying off credit card debt, or planning for

you and your spouse’s retirement.

Step 2: Break each financial goal down into several short-term (less than 1

year), medium-term (1 to 3 years) and long-term (5 years or more) goals; which

will make this process easier.

Step 3: Educate yourself and do your research. Read Money magazine or a

book about investing, or surf the Internet's investment web sites.

Step 4: Evaluate your progress as often as needed. Review your progress

monthly, quarterly, or at any other interval you feel comfortable with, but at least

semi-annually, to determine if your program is working.

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MBA LECTURER

FINANCIAL GOALS & PERFORMA STATEMENTS

If you're not making a satisfactory amount of progress on a particular goal, re-

evaluate your approach and make changes as necessary.

Sometimes when people write down their goals, they discover that some of the

goals are too broad in meaning and nearly impossible to reach, while others may

seem smaller in scope and easier to achieve. Break your goals down into three

separate time categories. By placing a time frame on your goals you are motivating

yourself to get started and helping to allow you the chance to succeed. Just

remember that you can adjust the time frame whenever you want to.

Long-term goals (over 5 years) are those things that won't happen overnight, no

matter how hard you work to achieve them. They may take a long time to

accomplish (hence the reason they are called long term goals), so give yourself a

reasonable amount of time, that are based on your best estimates of what it will

take to achieve them. Examples of long-term goals might include college education

for a child, retirement plan or purchasing a home. Whatever the case, these goals

generally require longer commitments and often more money in the end.

Intermediate-term goals (1-5 years) are the type of goals that can't be executed

overnight but might not take many years to accomplish. Examples might include

purchasing/replacing a car, getting an education or certification, or paying off your

debts like credit cards etc. (depending on the amount).

Short-term goals (within one year) generally take one year or less to achieve,

based on the date the task is needed, the total estimated cost, and the required

savings.

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MBA LECTURER

FINANCIAL GOALS & PERFORMA STATEMENTS

What are your goals? To find out, you need to make up a list, decide which

timeline your goal fits into, detail the steps necessary to achieve your goals, then

take action toward reaching those goals. It’s that simple. You might be wondering

where to start with your financial goal settting plan. These are some basic tips to

help you in making the best choices for you.

After looking at these tips, it is best for you to go out and do some research to find

the method(s) that suit you best.

Begin by taking 5%-10% out of each pay check and put it in a savings

account

Look into different investment strategies such as IRA’s, stocks, RRSP’s,

mutual Funds, personal investments etc. There are many more and all can

assist you in short and long term goals.

Start making a budget for yourself that leaves you with some extra money

and follow it

Use your coupons that is why they are there. It seems like small savings, but

add together you could save 20-30 dollars at each trip to the market.

Shop around for bargains

Work with a credit counselor to get help in lowering your monthly expenses

and get rid of your debt

SAMRITI GOEL

MBA LECTURER

FINANCIAL GOALS & PERFORMA STATEMENTS

These are just some of the things that you can do when beginning your financial

goal setting plan. The steps to setting goals successfully don’t change, only the

methods that you use to go about it. For example: when it is career wise, work to

get noticed; for relationships, work on maintaining your intimacy or getting it

back; in financial goal setting, work to save and invest money etc.

It really is that easy.

Pro Forma Statement

Pro forma, a Latin term meaning "as a matter of form," is applied to the

process of presenting financial projections for a specific time period in a

standardized format.

Businesses use pro forma statements for decision-making in planning and

control, and for external reporting to owners, investors, and creditors.

Pro forma statements can be used as the basis of comparison and analysis to

provide management, investment analysts, and credit officers with a feel for

the particular nature of a business's financial structure under various

conditions.

Both the American Institute of Certified Public Accountants (AICPA) and

the Securities and Exchange Commission (SEC) require standard formats for

businesses in constructing and presenting pro forma statements.

"Anyone thinking of going into business should prepare pro forma

statements, both income and cash flow, before investing time, money, and

energy,"

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MBA LECTURER

FINANCIAL GOALS & PERFORMA STATEMENTS

A pro forma income statement is similar to a historical income statement, except it

projects the future rather than tracks the past. Pro forma income statements are an

important tool for planning future business operations. If the projections predict a

downturn in profitability, you can make operational changes such as increasing

prices or decreasing costs before these projections become reality.

Pro forma income statements provide an important benchmark or budget for

operating a business throughout the year. They can determine whether expenses

can be expected to run higher in the first quarter of the year than in the second.

They can determine whether or not sales can be expected to be run above average

in June. The can determine whether or not your marketing campaigns need an extra

boost during the fall months. All in all, they provide you with invaluable

information—the sort of information you need in order to make the right choices

for your business.

James O. Gill wrote in his book Financial Basics of Small Business Success. As

a vital part of the planning process, pro forma statements can help minimize the

risks associated with starting and running a new business. They can also help

convince lenders and investors to provide financing for a start-up firm.

But pro forma statements must be based upon objective and reliable information in

order to create an accurate projection of a small business's profits and financial

needs for its first year and beyond.

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MBA LECTURER

FINANCIAL GOALS & PERFORMA STATEMENTS

After preparing initial pro forma statements and getting the business off the

ground, the small business owner should update the projections monthly and

annually.

Uses of Pro Forma Statements

1. BUSINESS PLANNING : A company uses pro forma statements in the

process of business planning and control. Because pro forma statements are

presented in a standardized, columnar format, management employs them to

compare and contrast alternative business plans. By arranging the data for the

operating and financial statements side-by-side, management analyzes the

projected results of competing plans in order to decide which best serves the

interests of the business. In constructing pro forma statements, a company

recognizes the uniqueness and distinct financial characteristics of each proposed

plan or project.

Pro forma statements allow management to:

Identify the assumptions about the financial and operating characteristics

that generate the scenarios.

Develop the various sales and budget (revenue and expense) projections.

Assemble the results in profit and loss projections.

Translate this data into cash-flow projections.

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MBA LECTURER

FINANCIAL GOALS & PERFORMA STATEMENTS

Compare the resulting balance sheets.

Perform ratio analysis to compare projections against each other and against

those of similar companies.

Review proposed decisions in marketing, production, research and

development, etc., and assess their impact on profitability and liquidity.

Pro forma statements for each plan provide important information about future

expectations, including sales and earnings forecasts, cash flows, balance sheets,

proposed capitalization, and income statements. Management also uses this

procedure in choosing among budget alternatives. Planners present sales revenues,

production expenses, balance sheet and cash flow statements for competing plans

with the underlying assumptions explained. Based on an analysis of these figures,

management selects an annual budget.

During the course of the fiscal period, management evaluates its performance by

comparing actual results to the expectations of the accepted plan using a similar

pro forma format.

2. FINANCIAL MODELING : Pro forma statements provide data for

calculating financial ratios and for performing other mathematical calculations.

Financial models built on pro form projections contribute to the achievement of

corporate goals if they: 1) test the goals of the plans; 2) furnish findings that are

readily understandable; and 3) provide time, quality, and cost advantages over

other methods.

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MBA LECTURER

FINANCIAL GOALS & PERFORMA STATEMENTS

3. ASSESSING THE IMPACT OF CHANGES: A company prepares pro

forma financial statements when it expects to experience or has just experienced

significant financial changes. The pro forma financial statements present the

impact of these changes on the company's financial position as depicted in the

income statement, balance sheet, and the cash-flow statement. For example,

management might prepare pro forma statements to gauge the effects of a

potential merger or joint venture. It also might prepare pro forma statements to

evaluate the consequences of refinancing debt through issuance of preferred

stock, common stock, or other debt.

4. EXTERNAL REPORTING. Businesses also use pro forma statements in

external reports prepared for owners (stockholders), creditors, and potential

investors. For companies listed on the stock exchanges, the SEC requires pro

forma statements with any filing, registration statements, or proxy statements.

The SEC and organizations governing accounting practices require companies

to prepare pro forma statements when essential changes in the character of a

business's financial statements have occurred or will occur.

Financial statements may change because of:

Changes in accounting principles due to adoption of a generally accepted

accounting principle different from one used previously for financial

accounting.

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MBA LECTURER

FINANCIAL GOALS & PERFORMA STATEMENTS

A change in accounting estimates dealing with the estimated economic life

and net residual value of assets.

A change in the business entity resulting from the acquisition or disposition

of an asset or investment, and/or the pooling of interests of two or more

existing businesses.

A correction of an error made in report or filing of a previous period.

When a company changes an accounting method, it uses pro forma financial

statements to report the cumulative effect of the change for the period during

which the change occurred.

The SEC Format

The SEC prescribes the form and content of pro forma statements for companies

subject to its jurisdiction in circumstances such as the above. Some of the form and

content requirements are:

An introductory paragraph describing the proposed transaction, the entities

involved, the periods covered by the pro forma information, and what the

pro forma information shows.

A pro forma condensed balance sheet and a pro forma condensed income

statement, in columnar form, showing the condensed historical amounts, the

pro forma adjustments, and the pro forma amounts. Footnotes provide

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MBA LECTURER

FINANCIAL GOALS & PERFORMA STATEMENTS

justification for the pro forma adjustments and explain other details pertinent

to the changes.

The pro forma adjustments, directly attributable to the proposed change or

transaction, which are expected to have a continuing impact on the financial

statements. Explanatory notes provide the factual basis for adjustments.

5. PRO FORMA STATEMENTS FOR CHANGES IN ENTITY AND

FOR BUSINESS COMBINATIONS : The FASB, the AICPA, and the

SEC have provided significant directives to the form, content, and necessity

of pro forma financial statements in situations where there has been a change

in the form of a business entity. Such a change in form may occur due to

changes in financial structure resulting from the disposition of a long-term

liability or asset, or due to a combination of two or more businesses.

The purpose of pro forma financial statements is to facilitate comparisons of

historic data and projections of future performance. In these circumstances

users of financial statements need to evaluate a new or proposed business

entity on a basis comparable to the predecessor business in order to

understand the impact of the change on cash flow, income, and financial

position.

Pro forma adjustments to accounting principles and accounting estimates

reformat the statements of the new entity and the acquired business to

conform with those of the predecessor.

Occasionally, a partnership or sole proprietorship will sell all or part of the

business interest. Sometimes it is necessary, especially if the business is

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MBA LECTURER

FINANCIAL GOALS & PERFORMA STATEMENTS

"going public," to reorganize into a corporation. The financial statements on

a corporation with a very short history are not helpful in a thoughtful

analysis of future potential.

Similarly, because of the differences in federal income tax liabilities, a

restatement of the predecessor business in historical terms only confuses the

picture. Since the financial statements of the predecessor business do not

contain some of the expense items applicable to a corporation, the pro forma

financial statements make adjustments to restate certain expenses on a

corporate basis.

6. ACQUISITION OR DISPOSAL OF PART OF A BUSINESS: For a

company that decided to acquire part of a new business or dispose of part of its

existing business, a meaningful pro forma statement should adjust the historical

figures to demonstrate how the acquired part would have fared had it been a

corporation. Proforma statements should also set forth conventional financial

statements of the acquiring company, and pro forma financial statements of the

business to be acquired.

A pro forma income statement combines the historical income statement of

the acquiring company and a pro forma income statement of the business to

be acquired for the previous five years, if possible.

Pro forma adjustments exclude overhead costs not applicable in the new

business entity, such as division and head office expenses.

The purchase of a sole proprietorship, partnership, Sub-Chapter S

corporation, or business segment requires pro forma statements for a series

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MBA LECTURER

FINANCIAL GOALS & PERFORMA STATEMENTS

of years in order to reflect adjustments for such items as owners' or partners'

salaries and income taxes.

Summary

Pro forma statements are an integral part of business planning and control.

Managers use them in the decision-making process when constructing an

annual budget, developing long-range plans, and choosing among capital

expenditures.

Pro forma statements are also valuable in external reporting.

Public accounting firms find pro forma statements indispensable in assisting

users of financial statements in understanding the impact on the financial

structure of a business due to changes in the business entity, or in accounting

principles or accounting estimates.

Although pro forma statements have a wide variety of applications for

ongoing, mature businesses, they are also important for small businesses and

startup firms, which often lack the track record required for preparing

conventional financial statements.

As a planning tool, pro forma statements help small business owners

minimize the risks associated with starting and running a new business.

The data contained in pro forma statements can also help convince lenders

and investors to provide financing for a start-up firm.

SAMRITI GOEL

MBA LECTURER