extended pro forma statement
TRANSCRIPT
EXTENDED PRO FORMA STATEMENT
Carrine Kezia Aulia | 102183022Min Vatcharavee P. I 102183026
OUTLINE
EXTENDED PRO FORMA STATEMENTThe percentage of sales
Income Statement Balance Sheet
External Financing and Growth
The Percentage of SalesINCOME STATEMENT
A financial planning method in which accounts are varied depending on a firm’s predicted sales level.
PRO FORMA INCOME STATEMENT
REVIEW
The Percentage of SalesINCOME STATEMENT
25% growth
The Percentage of SalesINCOME STATEMENT
DIVIDENDS$44 + ($44 x 25%) = $55
Find the percentage! (Dividend payout ratio)
44 1 132 31/3 X NET INCOME (pro
forma)1/3 X
$165= $55
CASH DIVIDEND
NET INCOME
The Percentage of SalesINCOME STATEMENT
RETAINED EARNINGS$88 + ($88 x 25%) = $110
Find the percentage! (Add to retained earnings ratio)
88 2 132 32/3 X NET INCOME (pro
forma)2/3 X
$165= $110
Retained Earnings
NET INCOME
The Percentage of SalesBALANCE SHEET
We assume that one items vary directly with sales and others do not. For items that vary with sales, we express each as a percentage of sales for the year just completed. When an item does not vary directly with sales, we write “n/a” for “not applicable.”
The Percentage of SalesBALANCE SHEET
$SALES from original income statement
THE RATIO of TOTAL ASSETS / CAPITAL INTENSITY RATIO
the amount of assets needed to generate $1 in sales
Every increase $1 in sales, inventory will rise by $.60
$ + (increasing sales x percentage of
sales)Projected $ -
Original
$ + (increasing sales x percentage of sales)
Projected $ - Original
Three possible source to put EXTERNAL FINANCINGShort-term borrowingLong-term borrowingNew equity
Net Working Capital (NWC) = 1,200-800 = 400
Net Working Capital (NWC) = Same
300 – 75 = 225
565 – 225 = 340
EXTERNAL FINANCING and
GROWTH
Debt-Equity RatioDEBT-EQUITY
RATIO TOTAL DEBT TOTAL EQUITY
1
GROWTH RATE = 20%
DEBT-EQUITY RATIO
TOTAL DEBT 297.2 TOTAL EQUITY 302.8
0.98
ORIGINAL
0 % Growth
0% growth
0% growth
0
206 294 0.70
25 % Growth
25% Growth
0
320 305 1.05
FINANCIAL POLICY AND GROWTH
THE INTERNAL GROWTH RATETHE SUSTAINABLE GROWTH RATE
Internal Growth Rate
ROA = Return on Assets b = Retention ratio =1 - dividend payout ratio and Return on
Equity = Net Income/Total Shareholder's Equity
Internal growth rate is a formula for calculating the maximum growth rate a firm can achieve without
external financing of any kind.
For example
For the Hoffman Company, net income was $66 and total assets were $500. $44 was retained
Thus ,ROA is $66/500 = 13.2 percent. Of the $66 net income,, so the retention ratio, b, is $44/66 = 2/3. With these numbers, we can calculate the internal growth rate as:
Thus, the Hoffman Company can expand at a maximum rate of 9.65 percent per year without external financing.
IGR = ROA x b 1-ROA x b = .132 x (2/3) 1-.132 x (2/3) = 9.65 percent
Sustainable Growth Rate
ROE = Return on Equity b = Retention ratio =1 - dividend payout ratio and Return on
Equity = Net Income/Total Shareholder's Equity
Sustainable growth rate in a business is the maximum growth rate a business can achieve without having to increase its financial leverage or debt financing.
Sustainable growth rate (SGR) = ROE X b 1-ROE x b
For example
For the Hoffman Company, net income was $66 and total equity were $250. $44 was retained
Thus ,ROE is $66/250 = 26.4 percent. $66 was net income,, so the retention ratio, b,is still $44/66 = 2/3. With these numbers, we can calculate the sustain growth rate as:
SGR = ROE X b 1-ROE x b = .246 x (2/3 ) = 21.36 Percent 1-.264 x (2/3 ) Thus, the Hoffman Company can expand at a maximum
rate of 21.36 percent per year without external equity financing
Determinants of Growth
ROE SGR
ROE Retention ratio 4 Factors1.Profit margin2.Dividend policy3.Financial policy4.Total asset turnover
If a firm does not wish to sell new equity and its profit margin, dividend policy, financial policy, and total asset turnover (or capital intensity) are all fixed, then there is only one possible growth rate
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