Short-Term Forecasting Pro Forma Analysis Objectives: Verifies reasonableness of short-term forecasts Assesses feasibility of short-term forecasts
Objectives: ➢ Verifies reasonableness of short-term forecasts ➢ Assesses feasibility of short-term forecasts Short-Term Forecasting Pro Forma Analysis
Short-Term Forecasting Pro Forma Analysis Focus on construction of pro forma financial statements Prepare pro forma income statement Prepare pro forma balance sheet Financial ratios derived from pro forma statements Assess pro forma ratios for reasonableness and feasibility Compare key relations to past relations y Unexpected variations must be reviewed for possible revisions
Focus on construction of pro forma financial statements - Prepare pro forma income statement - Prepare pro forma balance sheet - Financial ratios derived from pro forma statements - Assess pro forma ratios for reasonableness and feasibility - Compare key relations to past relations - Unexpected variations must be reviewed for possible revisions Short-Term Forecasting Pro Forma Analysis
Short-Term Forecasting Pro Forma Analysis-lllustration Estimates of sales and Cash Collections For Months January-June, Year 1 January February March April May June Sales $100,000$125,000$150,000$175,000$200,000$250,000 Collections of sales: 1 st month40%$40,000$50,000$60,000$70,000$80,000$100,000 2nd month% 30,00037,50045,00052,50060,000 3rd month -% 20,00025,00030,00035,000 4th month% 5,0006,2507,500 Total cash collections $40,000$80,000$117,500$145,000$168,750$202,500 Vrite-offs--5% 5,0006,2507,500
Short-Term Forecasting Pro Forma Analysis--Illustration Estimates of Sales and Cash Collections For Months January–June, Year 1 January February March April May June Sales $100,000 $125,000 $150,000 $175,000 $200,000 $250,000 Collections of sales: 1st month—40% $ 40,000 $ 50,000 $ 60,000 $ 70,000 $ 80,000 $100,000 2nd month—30% 30,000 37,500 45,000 52,500 60,000 3rd month—20% 20,000 25,000 30,000 35,000 4th month—5% 5,000 6,250 7,500 Total cash collections $ 40,000 $ 80,000 $117,500 $145,000 $168,750 $ 202,500 Write-offs—5% 5,000 6,250 7,500
Short-Term Forecasting Pro Forma Analysis-lllustration Expense Estimates For Months January-June, Year 1 Materials 6O% of sales Labor .5% of sales Manufacturing overhead Variable 10% of sales Fixed $8, 000 per month (includes $1,000 depreciation per month) Selling expenses 10% of sales General and administrative expenses Variable 8% of sales Fixed $7,000 per month
Short-Term Forecasting Pro Forma Analysis--Illustration Expense Estimates For Months January–June, Year 1 Materials 30% of sales Labor 25% of sales Manufacturing overhead: Variable 10% of sales Fixed $8,000 per month (includes $1,000 depreciation per month) Selling expenses 10% of sales: General and administrative expenses: Variable 8% of sales Fixed $7,000 per month