Corporate Finance

Running head : CORPORATE FINANCE

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Proforma financial statement is a statement showing the financial results that would reflect and emphasize on future projected results Proforma statements are used in following ways

A . Business Planning

There statements are used as tools for planning and control purposes The business arranges items side by side to the operating and financial statement and analyzes projected results of competing projects to choose the one the business will concentrate on

The statements (Proforma statements ) enhance management in p

Pinpointing assumption that generate different scenarios

Developing projections for budget

Assembling results in income statement forecasts

Translating data to cash flow forecast

Comparing balance sheet results

Use ratio analysis against similar companies

Deliberate on the proposed decision

The management uses the procedures to choose budget alternative

B ) Financial Modeling

Through the proforma statements we get data for calculating financial ratios to perform mathematical calculations . They help achieve firm 's goal if they are designed to

Test goals and plans of organization

Give full finding on the organization

Through study of impact of variables the financial modeling tests assumption creating and how they relate to proposed plans

C ) EXTERNAL REPORTING

For statement prepared for stakeholders like shareholders , creditors profoma statements can be used . SEC requires profoma statement be provided when filling registration is been done or making any proxy statements SEC require for any major changes a proforma statement be prepared concerning those changes . The changes include

Change in accounting methodology

Change in accounting principles

Change in accounting estimates

Change in tax coding

B ) STEPS IN FINANCIAL FORECASTING

The steps that are involved in financial forecasting are

Projecting the firms sales

This is also like planning for better performance in future , the target sales are made and communicated to sales executive

Projecting assets needed to support the sales

These are materials that will help achieve the projected sales . These are expenses and asset

Determine internally generated resources

This includes looking at resources this includes looking at resources already in firm that are going to support projected funds

Project external funds needed

After determining internally generated funds the funds remaining are from outside

Decide on how to raise funds

The methods to acquire extra financing are calculated . This may include debts e .t .c

See effects of plan on ratios and stock price decided to know if they are going to have advanced effects or projection on the ratios and stock price is decided to know if they are going to have advance effects or positive effects

C

AFN required - liabilities change in retained earning

Change in liability 0 .050 x 500 million 25 ,million

Changing in retained 0 .027 x 2500 million x 0 .6

Earning 405

AFN 250- 25- 30 .4 184 /50

D

Sales increase

If sales increase we get more funds for the organization-generated internally hence the AFN would decrease

Dividend payout ratio increase

Payment of dividends results to funds outflow hence there would increase outflow thus AFN increase

c . Profit margin increase...