Pro Forma Statement Template

sustainable growth

(c) Stephen R. Foerster, 04/08/2023 spreadsheet to accompany Financial Management: A Primer

Projecting Financial Requirements: Pro Forma Financial StatementsSustainable Growth Example (Chapter 5)page 1 of 4

Income Statement Forecasting Assumptions

Item Assumption or Calculation Percentages (Fractions)

1 Asset Turn. (AT = sales/assets) assumption 3.000

2 Fin. Lev. (FL = assets/equity) assumption 2.500

Profit Margin:3 Gross Margin (GP/sales) assumption 0.2104 SG&A Expenses (% of sales) assumption 0.150

Dep. Expenses (% of sales):5 Dep. % of fixed assets assumption 0.2006 Fixed assets/total assets assumption 0.3007 Dep. % of total assets item 5 x item 6 0.0608 Assets/sales 1/ item 1 0.3339 Dep. % of sales item 7 x item 8 0.020

Int. Expenses (% of sales):10 Int. % of LT debt assumption 0.10011 LT debt/total assets assumption 0.40012 Assets/sales 1/ item 1 0.33313 Int. % of sales item 10 x item 11 x item 12 0.01314 Expenses (% of sales) item 4 + item 9 + item 13 0.183

15 Profit margin before tax item 3 - item 14 0.027

16 Tax rate assumption 0.40017 Profit Margin (PM = NI/sales) item 15 x (1 - item 16) 0.016

Income Statement and Balance Sheet Connection:

18 ROE = AT x FL x PM item 1 x item 2 x item 17 0.12019 retention ratio (b) assumption 0.60020 sustainable growth = ROE x b item 18 x item 19 0.072

sustainable growth



Balance Sheet Forecasting Assumptions

Initial assets: assumption % of init. Assets Values21 Total assets assumption 10022 Cash assumption 0.100 1023 Accounts receivable assumption 0.250 2524 Inventory assumption 0.350 35

Fixed assets see above 0.300 30

Initial Liabilites:25 Accounts payable assumption 0.200 20

Long-term debt see above 0.400 40

Inital equity: see above 0.400 40

Pro Forma Performance Ratios Yr. 0 Yr. 1 Yr. 2Return on equity 0.12 0.12

Profitability:Gross margin 0.21 0.21Operating expense ratio 0.17 0.17

Resource management:Age of Inventory 57.78 57.78Age of Receivables 32.61 32.61Age of Payables 33.02 33.02

Liquidity and leverage:Current ratio 3.50 3.50 3.50Acid test 1.75 1.75 1.75Debt-to-equity 1.50 1.50 1.50Long-term debt to capital 0.50 0.50 0.50Interest coverage 3.00 3.00

sustainable growth


sustainable growth



Pro Forma Income Statement Year 1 Year 2fraction of sales $ amount(unless otherwise noted)

Sales 300.0 321.6Cost of Good Sold 237.0 254.1Gross Profit 0.210 63.0 67.5Operating Expenses: Selling, Gen. & Admin. 0.150 45.0 48.2 Depreciation 0.020 6.0 6.4Total Operating Expenses 51.0 54.7

Earnings Before Int. & Taxes 12.0 12.9Interest Expenses 0.013 4.0 4.3Earnings Before Tax (EBT) 8.0 8.6

Taxes 0.400 of EBT 3.2 3.4Earnings After Tax (EAT) 4.8 5.1

Dividends 0.400 of EAT 1.9 2.1Change in Retained Earnings 2.9 3.1

ROE 0.120 0.120sustainable growth 0.072 0.072

sustainable growth



Year 0 Year 1 Year 2Pro Forma Balance SheetAssets: Cash 10.0 10.7 11.5 Accounts Receivable 25.0 26.8 28.7 Inventory 35.0 37.5 40.2 Fixed Assets 30.0 32.2 34.5Total Assets 100.0 107.2 114.9Liabilities: Accounts Payable 20.0 21.4 23.0 Long-term Debt 40.0 42.9 46.0Total Liabilities 60.0 64.3 69.0

Equity 40.0 42.9 46.0Total Liabilities and Equity 100.0 107.2 114.9

pro formas (1)


Pro Forma Balance Sheet (Chapter 5)Current Assets Cash working capitalProceeds from sale of CS units

Fixed AssetsPropertyBuildingHotel FurnishingsOther Org Costs, legal incorporationTotal Fixed Assets new assets (before depreciation)

Total Assets

Liabilities:Long Term Liabilities Long-term Loan furnishing suppliers, 5 yrsMortgage 20 year, 8%

Current Liabilities Current portion of loan blended annual payment Current portion of mortgage blended annual payment

Total Liabilities

Equity # of CS BOD construction investment 15000 CS Land Purchase from Daniels 97500 CS 24 units of 10K CS 240000 CS (option 2) 352500.02500 CS * 24 units 60000 CS (option 3) 412500.03000 PS * 24 units 72000 PS (option 3)

Total Liabilities and Equity same as total assets

pro formas (1)


Option 1: Mortgage Option 2: CS sale Option 3:PS+CS

75,000.00 75,000.00 75,000.00

975,000.00 975,000.00 975,000.00 2,300,000.00 2,300,000.00 2,300,000.00 1,100,000.00 1,100,000.00 1,100,000.00 50,000.00 50,000.00 50,000.00 4,425,000.00 4,425,000.00 4,425,000.00

4,500,000.00 4,500,000.00 4,500,000.00

809840.0 809840.0 809840.02044000.02853840.0 809840.0 809840.0

290160.0 290160.0 290160.0231000.0521160.0 290160.0 290160.0

3375000.0 1100000.0 1100000.0

# of PS Daniels % 1125000.0 3400000.0 3400000.089% 150000.0 150000.0 150000.0

975000.0 975000.0 975000.042% 2275000.024% 475000

72000 18000002275000

4,500,000.00 4,500,000.00 4,500,000.00

cash budget


Cash Budget (Chapter 5)

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total

Sales (all on credit) 25.0 25.0 25.0 25.0 23.2 23.2 23.2 23.2 26.8 26.8 26.8 26.8 300.0

Cash inflows (AR = 30 days) 25.0 25.0 25.0 25.0 25.0 23.2 23.2 23.2 23.2 26.8 26.8 26.8 298.2

Operations:Purchases 20.0 20.0 20.0 20.0 18.0 18.0 18.0 19.0 21.5 21.6 21.7 21.7 239.5

Cash outflows:Payables (AP = 30 days) 20.0 20.0 20.0 20.0 20.0 18.0 18.0 18.0 19.0 21.5 21.6 21.7 237.8SG&A 4.0 4.0 4.0 3.5 3.0 3.0 3.0 3.0 4.0 4.5 4.5 4.5 45.0New equipment 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 8.2 8.2Interest 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 4.0Taxes 0.0 0.0 0.8 0.0 0.0 0.8 0.0 0.0 0.8 0.0 0.0 0.8 3.2Dividends 0.0 0.0 0.5 0.0 0.0 0.5 0.0 0.0 0.5 0.0 0.0 0.5 1.9 Total cash outflows 24.3 24.3 25.6 23.8 23.3 22.6 21.3 21.3 24.6 26.3 26.4 36.0 300.1

Net monthly cash flows 0.7 0.7 -0.6 1.2 1.7 0.6 1.9 1.9 -1.4 0.5 0.4 -9.2 -1.9Beg. of month bank loan >cash 30.0 29.3 28.7 29.2 28.1 26.4 25.8 23.9 22.1 23.5 23.0 22.7 30.0End of month loan > cash 29.3 28.7 29.2 28.1 26.4 25.8 23.9 22.1 23.5 23.0 22.7 31.9 31.9

spreadsheet


Pro Forma Income Statement Spreadsheet Development (Chapter 5) STEPSales assumption column F formulas 300.0 1Cost of Good Sold: Beginning Inventory last year's beg. inv. =E25 35.0 6 + Purchases: CGS + end. inv. - beg. inv. =F6-F4 239.5 7 Cost of Goods Available =F8+F7 274.5 5 - Ending Inventory 57.8 days of cost of sales =B7*(F8/365) 37.5 4 Cost of Goods Sold =F2*(1-B9) 237.0 3Gross Profit 0.210 fraction of sales =F2*B9 63.0 2Operating Expenses: Selling, Gen. & Admin. 0.15 fraction of sales =B11*F2 45.0 8 Depreciation 0.20 fraction of beg. fixed assets =B12*E26 6.0 9Total Operating Expenses =SUM(F11:F12) 51.0 10Earnings Before Int. & Taxes =F9-F13 12.0 11Interest Expenses 0.10 =B15*E30 4.0 12Earnings Before Tax (EBT) =F14-F15 8.0 13Taxes 0.40 fraction of EBT =B17*F16 3.2 14Earnings After Tax (EAT) =F16-F17 4.8 15Dividends 0.40 fraction of EAT =B19*F18 1.9 16Change in Retained Earnings =F18-F19 2.9 17Pro Forma Balance Sheet Spreadsheet Development (Chapter 5)Assets: Year 0 Year 1 Cash assumed minimum =10.7 10.0 10.7 18 Accounts Receivable 32.6 days of acc. rec. =B24*F2/365 25.0 26.8 19 Inventory 57.8 days of cost of sales =F7 35.0 37.5 20 Fixed Assets 8.2 new assets (before dep.) =E26+B26-F12 30.0 32.2 21Total Assets =SUM(F23:F26) 100.0 107.2 22Liabilities: Accounts Payable 33.0 days of payables =B29*F5/365 20.0 21.7 26 Long-term Debt balancing amount =F31-F29 40.0 42.7 27Total Liabilities total liab. & equity - equity =F33-F32 60.0 64.4 25Equity beg. + change in ret. earn. =E32+F20 40.0 42.9 24

fraction of current loan

spreadsheet


Total Liabilities and Equity same as total assets =F27 100.0 107.2 23

pro formas (2)


Pro Forma Income Statement: "Iteration" Method (Chapter 5)Go to "Tools" -- "Options" -- "Calculations"; click on "Iteration" box

assumptionSales management estimate 300.0Cost of Good Sold: Beginning Inventory last year's beginning inventory 35.0 + Purchases: C.G.S. + end. inv. - beg. inv. 239.5 Cost of Goods Available 274.5 - Ending Inventory 57.8 days of cost of sales 37.5 Cost of Goods Sold 237.0

Gross Profit 0.210 fraction of sales 63.0Operating Expenses: Selling, Gen. & Admin. 0.15 fraction of sales 45.0 Depreciation 0.20 fraction of beginning fixed assets 6.0Total Operating Expenses 51.0

Earnings Before Int. & Taxes 12.0Interest Expenses 0.10 Err:522Earnings Before Tax (EBT) Err:522

Taxes 0.40 fraction of EBT Err:522Earnings After Tax (EAT) Err:522

Dividends 0.40 fraction of EAT Err:522Change in Retained Earnings Err:522

Year 0 Year 1Pro Forma Balance Sheet: "Iteration Method" (Chapter 5)Assets: Cash assumed minimum 10.0 10.7 Accounts Receivable 32.6 days of accounts receivable 25.0 26.8 Inventory 57.8 days of cost of sales 35.0 37.5 Fixed Assets 8.2 new assets (before depreciation) 30.0 32.2Total Assets 100.0 107.2Liabilities: Accounts Payable 33.0 days of payables 20.0 21.7 Long-term Debt balancing amount 40.0 Err:522Total Liabilities total liability & equity - equity 60.0 Err:522

Equity beginning + change in ret. earn. 40.0 Err:522

fraction of pro forma loan: "iteration"

pro formas (2)


Total Liabilities and Equity same as total assets 100.0 107.2

sensitivity (1)


Pro Forma Income Statement: Sales Sensitivity Analysis (Chapter 5)Go to "Tools" -- "Options" -- "Calculations"; click on "Iteration" box

assumption

Sales change this amount 330.0Cost of Good Sold: Beginning Inventory last year's beginning inventory 35.0 + Purchases: C.G.S. + end. inv. - beg. inv. 267.0 Cost of Goods Available 302.0 - Ending Inventory 57.8 days of cost of sales 41.3 Cost of Goods Sold 260.7


Earnings Before Int. & Taxes 13.8Interest Expenses 0.10 fraction of pro forma loan: "iteration" Err:522Earnings Before Tax (EBT) Err:522



Year 0 Year 1Pro Forma Balance Sheet: Sales Sensitivity Analysis (Chapter 5)Assets: Cash assumed minimum 10.0 10.7 Accounts Receivable 32.6 days of accounts receivable 25.0 29.5 Inventory 57.8 days of cost of sales 35.0 41.3 Fixed Assets 8.2 new assets (before depreciation) 30.0 32.2Total Assets 100.0 113.7Liabilities: Accounts Payable 33.0 days of payables 20.0 24.2

Long-term Debt new loan amount 40.0 Err:522Total Liabilities total liability & equity - equity 60.0 Err:522


sensitivity (1)



sensitivity (2)


Pro Forma Income Statement: Acc. Rec. Sensitivity Analysis (Chapter 5)Go to "Tools" -- "Options" -- "Calculations"; click on "Iteration" box

assumptionSales management estimate 300Cost of Good Sold: Beginning Inventory last year's beginning inventory 35.0 + Purchases: C.G.S. + end. inv. - beg. inv. 239.5 Cost of Goods Available 274.5 - Ending Inventory 57.8 days of cost of sales 37.5 Cost of Goods Sold 237.0


Earnings Before Int. & Taxes 12.0Interest Expenses 0.10 fraction of pro forma loan: "iteration" Err:522Earnings Before Tax (EBT) Err:522



Year 0 Year 1Pro Forma Balance Sheet: Acc. Rec. Sensitivity Analysis (Chapter 5)Assets: Cash assumed minimum 10.0 10.7

Accounts Receivable 45.0 change this amount 25.0 37.0 Inventory 57.8 days of cost of sales 35.0 37.5 Fixed Assets 8.2 new assets (before depreciation) 30.0 32.2Total Assets 100.0 117.4Liabilities: Accounts Payable 33.0 days of payables 20.0 21.7

Long-term Debt new loan amount 40.0 Err:522Total Liabilities total liability & equity - equity 60.0 Err:522


sensitivity (2)



sales change

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Pro Forma Statement Template