PRESENTED BY:

AQUINO, MARVIN ENRIC P.

ESPIRITU, MARK
LOPEZ, LORD ALBERT
LUCERO, DIANE MARIE E.
SIBOMET, HAROLD
 Pro forma income Plan

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 income is the amount of
projected profit or loss, given the existence of certain
assumptions regarding future activities. If the underlying
assumptions are incorrect, then the amount of pro forma
income will not match the amount actually earned.
 Pro forma income Plan

A 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.
A pro-forma financial statement can be defined as “a
financial statement prepared on the basis of some
assumed events and transactions that have not yet
occurred.” So a pro-forma income statement is an income
statement based on a forecast. (Some people refer to an
income statement as a “P & L” or profit and loss.)
 USES OF PRO FORMA STATEMENTS

 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.
 USES OF PRO FORMA STATEMENTS

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 these data into cash-flow projections.
 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.
 Cash flow projections

What is cash flow?

Cash flow is the total money going into and out of your
business. It shows the change in your business’s liquid
assets over time.
What is cash flow projections?
A cash flow projection is an estimate of the money you
expect to flow in and out of your business. It includes all
your projected income and expenses.
A cash flow projection usually covers a 12 month period.
However, the estimates can cover a shorter period, such as
a month or week.
 Cash flow projections

Why should you project cash flow?

Your cash flow projections can help you predict coming cash surpluses or
shortages. You can see which periods have more income or expenses.
You can also use the projections to estimate the effects of a possible
business change.
For example, you will be hiring an employee within the next couple of
months. You can add to your forecast the employee’s wages, taxes, and
other expenses. Then, you can see how hiring the employee might
impact your cash flow.
If you apply for startup small business loans, you might need a cash flow
projection to prove your ability to repay on time. Lenders can see how
your business might do and judge your liquidity based on the estimates.
 How to calculate projected cash flow?

 1. Start with the amount of cash your business has at the beginning of the
period. This is all income minus all expenses from the previous period.
 2. Estimate how much cash will come into your business next period.
Incoming cash may include revenue, previous sales made on credit, and
loans. Forecast your future sales by looking at revenue trends from past
periods. Take into account any new factors that might be different from
past periods. For example, if you add a new product, you might have
greater sales.
 3. Estimate all expenses that you will pay next period. Consider both
variable and fixed costs. Variable costs, such as raw materials, fluctuate
with your sales. Fixed costs are not changed by your sales and include rent,
utilities, and insurance.
 4. Subtract your estimated expenses from your estimated income. The
resulting number is your business’s cash flow.
 5. Add your cash flow to your opening balance. This will give you your
closing balance. This number is also the opening balance for the next
period.
 6. Repeat these steps for the next period’s projected cash flow.
 What is a Pro Forma Balance Sheet?

A pro forma balance sheet is similar to a historical balance

sheet, but it represents a future projection. Pro forma
balance sheets are used to project how the business will be
managing its assets in the future.
For example, a pro forma balance sheet can quickly show the
projected relative amount of money tied up in receivables,
inventory, and equipment. It can show whether you are
going to run out of money, and how much additional money
you need to borrow, beg, or steal to be able to pay your
bills!
 Pro Forma Balance Sheet

It can also be used to project the overall financial

soundness of the company. For example, a pro forma
balance sheet can help quickly pinpoint a high debt-
to-equity ratio, a number that a banker might look to
use to measure the creditworthiness of a business.
 Break-even Analysis

Break-even analysis is a technique widely used by production

management and management accountants. It is based on categorizing
production costs between those which are "variable" (costs that change
when the production output changes) and those that are "fixed" (costs
not directly related to the volume of production).
Total variable and fixed costs are compared with sales revenue in order to
determine the level of sales volume, sales value or production
at which the business makes neither a profit nor a loss (the
"break-even point").
The Break-Even Chart
 Fixed Costs - are those business costs that are not directly related to
the level of production or output. In other words, even if the business
has a zero output or high output, the level of fixed costs will remain
broadly the same.

Examples of fixed costs:

- Rent and rates
- Depreciation
- Research and development
- Marketing costs (non- revenue related)
- Administration costs
 Variable Costs - are those costs which vary directly with the level of
output. They represent payment output-related inputs such as raw
materials, direct labor, fuel and revenue-related costs such as
commission.
A distinction is often made between "Direct" variable costs
and "Indirect" variable costs.
 Direct variable costs are those which can be directly attributable to the
production of a particular product or service and allocated to a
particular cost centre. Raw materials and the wages those working on
the production line are good examples.
 Indirect variable costs cannot be directly attributable to production
but they do vary with output. These include depreciation (where it is
calculated related to output - e.g. machine hours), maintenance and
certain labour costs.
Semi-Variable Costs
A semi-variable cost, also known as a semi-fixed cost or a mixed cost, is a
cost composed of a mixture of both fixed and variable components.
Costs are fixed for a set level of production or consumption, and
become variable after this production level is exceeded. If no
production occurs, a fixed cost is often still incurred.
 The Source and Application of Funds

The Source and Application of Funds Statement shows the

total sources of new funds raised between Balance Sheet
dates and the total uses of those funds in the same period.
The Source and Application of Funds Statement tells exactly
where the company got their money from and how it was
spent. It tells whether management has made sound
investment decisions.
This statement is made up by listing the changes that have
occurred in all of the Balance Sheet Items between any two
Balance Sheet dates.
The Source and Application of Funds

The cash flow statement shows a business’s cash inflow and

cash outflow over an accounting period, normally a month
or a year. A cash flow statement provides information about
the changes in cash and cash equivalents of a business by
classifying cash flows into operating, investing, and
financing activities. It is a key report to be prepared for
each accounting period for which financial statements are
presented by an enterprise.
 the statement consists of two sections:

Generally, the statement consists of two sections:

The source (where the money has come from) and
The application (where the money has gone).
 The sources of funds originate from:

 an increase in liabilities or a decrease in assets

 net income after tax
 the disposal or revaluation of fixed assets
 proceeds of loans raised
 proceeds of shares that were issued
 repayments received on loans previously granted by
the company
 any decrease in net working capital
 The application of funds originates from:

 The application of funds originates from:

 losses to be met by the company
 the purchase of fixed assets/investments
 the full or partial payment of loans
 granting of loans
 liability for taxes
 dividends paid and proposed
 any increase in net working capital