Pro Forma Income Statement and Balance Sheet Essay

Pro Forma Income Statement and Balance Sheet - Essay Example This is done by dividing the balance for these accounts by sales revenue for 2013. The Balance Sheet accounts, which generally vary closely with Sales are cash, inventory, accounts payable, and accounts receivable. Fixed Assets are also often tied closely to Sales, unless there is excess capacity. On the Income Statement, costs are expressed as a percentage of Sales. Since we are assuming that all costs remain at a fixed percentage of Sales, net Income can be expressed as a percentage of sales indicating the profit margin. Taxes are expressed as a percentage of taxable income to determine the tax rate. The next step is constructing the Partial Pro-forma Financial Statements. The first step involves determining the forecast sales level for the company. One plus the forecasted growth rate in Sales multiplied by the sales for the year 2013 yields the sales forecast for 2014. The following formula explains this step. To obtain the growth rate, we compare the sales level of 2013 to the sales level of 2011 and 2012. There was a 1.6% drop in sales from 2011 to 2012. In 2013, the drop in sales was 3.1%. the average drop in sales for the two year period was 2.35%. therefore, the forecasted sales level for 2014 will be; After determining the sales forecast, the income statement and balance sheet accounts that vary directly with Sales are determined by multiplying the percentages by the Sales forecast. The accounts that do not vary directly with Sales are transferred to the Partial Pro-Forma Financial Statements without adjustments. The last step of constructing the pro forma financial statements is determining the external finance needed. External finance needed is the difference between partial pro-forma total assets and partial pro-forma total liabilities and owners equity. The amount for Garmin Ltd is 4887221-4879603 = 7618. Firms can choose to raise the external finance needed by