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8/10/2019 IPPTChap010 hisrich
1/20
8/10/2019 IPPTChap010 hisrich
2/20
2014 by McGraw-Hill Education. This is proprietary material solely or authori!ed instructor use. "ot authori!ed or sale or distribution in any manner. This document
may not be copied# scanned# duplicated# orwarded# distributed# or posted on a website# in whole or part. 10-2
Learning Objectives
To understand the role of budgets inpreparing pro forma statements
To understand why positive profits canstill result in a negative cash flow
To learn how to prepare monthly pro
forma cash flow income balancesheet and sources and applications offunds statements for the first year ofoperation
8/10/2019 IPPTChap010 hisrich
3/20
2014 by McGraw-Hill Education. This is proprietary material solely or authori!ed instructor use. "ot authori!ed or sale or distribution in any manner. This document
may not be copied# scanned# duplicated# orwarded# distributed# or posted on a website# in whole or part. 10-$
Learning Objectives
To e!plain the application andcalculation of the brea"#even pointfor the new venture
To illustrate the alternative softwarepac"ages that can be used forpreparing financial statements
8/10/2019 IPPTChap010 hisrich
4/20
2014 by McGraw-Hill Education. This is proprietary material solely or authori!ed instructor use. "ot authori!ed or sale or distribution in any manner. This document
may not be copied# scanned# duplicated# orwarded# distributed# or posted on a website# in whole or part. 10-4
Operating and Capital
$udgets %ales budget # &n estimate of thee!pected volume of sales by month 'etermined on the basis of sales
forecasts (anufacturing ventures # Costs of
internal production and subcontracting
are compared )ncludes ending inventory estimation
8/10/2019 IPPTChap010 hisrich
5/20
2014 by McGraw-Hill Education. This is proprietary material solely or authori!ed instructor use. "ot authori!ed or sale or distribution in any manner. This document
may not be copied# scanned# duplicated# orwarded# distributed# or posted on a website# in whole or part. 10-%
Table 10*1 # & %ample(anufacturing $udget for First
Three (onths
8/10/2019 IPPTChap010 hisrich
6/20
2014 by McGraw-Hill Education. This is proprietary material solely or authori!ed instructor use. "ot authori!ed or sale or distribution in any manner. This document
may not be copied# scanned# duplicated# orwarded# distributed# or posted on a website# in whole or part. 10-&
Operating and Capital
$udgets Operating costs Fi!ed e!penses incurred regardless of
sales volume +ariable e!penses must be lin"ed to
strategy in the business plan
Capital budgets # Provide a basis for
evaluating e!penditures
8/10/2019 IPPTChap010 hisrich
7/20 2014 by McGraw-Hill Education. This is proprietary material solely or authori!ed instructor use. "ot authori!ed or sale or distribution in any manner. This document
may not be copied# scanned# duplicated# orwarded# distributed# or posted on a website# in whole or part. 10-'
Table 10*, # & %ample Operating$udget for First Three (onths
-.000s/Clic" to edit (aster te!t styles
%econd level Third level
Fourth level Fifth level
8/10/2019 IPPTChap010 hisrich
8/20 2014 by McGraw-Hill Education. This is proprietary material solely or authori!ed instructor use. "ot authori!ed or sale or distribution in any manner. This document
may not be copied# scanned# duplicated# orwarded# distributed# or posted on a website# in whole or part. 10-(
Pro Forma )ncome
%tatements Pro forma income Projects net profit calculated from
projected revenue minus projected costs
and e!penses* %tarts by calculating monthly sales Projects operating e!penses for each of
the months during the first year Projections should be made for years ,
and as well
8/10/2019 IPPTChap010 hisrich
9/20 2014 by McGraw-Hill Education. This is proprietary material solely or authori!ed instructor use. "ot authori!ed or sale or distribution in any manner. This document
may not be copied# scanned# duplicated# orwarded# distributed# or posted on a website# in whole or part. 10-)
Table 10*# (PP Plastics )nc* ProForma )ncome %tatement First 2ear by
(onth -.000s/
8/10/2019 IPPTChap010 hisrich
10/20 2014 by McGraw-Hill Education. This is proprietary material solely or authori!ed instructor use. "ot authori!ed or sale or distribution in any manner. This document
may not be copied# scanned# duplicated# orwarded# distributed# or posted on a website# in whole or part. 10-10
Pro Forma Cash Flow
Projected cash available calculated fromprojected cash accumulations minusprojected cash disbursements
3ot the same as profit %ales may not be regarded as cash Profit as a measure of success may be
deceiving if there is significant negative cash
flow Can be projected using the indirect or
direct method
8/10/2019 IPPTChap010 hisrich
11/20
2014 by McGraw-Hill Education. This is proprietary material solely or authori!ed instructor use. "ot authori!ed or sale or distribution in any manner. This document
may not be copied# scanned# duplicated# orwarded# distributed# or posted on a website# in whole or part. 10-11
Table 10*4 #%tatement of CashFlows The )ndirect (ethod
8/10/2019 IPPTChap010 hisrich
12/20
2014 by McGraw-Hill Education. This is proprietary material solely or authori!ed instructor use. "ot authori!ed or sale or distribution in any manner. This document
may not be copied# scanned# duplicated# orwarded# distributed# or posted on a website# in whole or part. 10-12
Table 10*5- (PP Plastics )nc*Pro Forma Cash Flow First 2ear
by (onth -.000s/Clic" to edit (aster te!t styles%econd level
Third level Fourth level
Fifth level
8/10/2019 IPPTChap010 hisrich
13/20
2014 by McGraw-Hill Education. This is proprietary material solely or authori!ed instructor use. "ot authori!ed or sale or distribution in any manner. This document
may not be copied# scanned# duplicated# orwarded# distributed# or posted on a website# in whole or part. 10-1$
Pro Forma $alance %heet
%ummari6es the projected assetsliabilities and net worth of the newventure
Consists of &ssets
Liabilities
Owners equity &mount invested and7orretained from the venture operations
8/10/2019 IPPTChap010 hisrich
14/20
2014 by McGraw-Hill Education. This is proprietary material solely or authori!ed instructor use. "ot authori!ed or sale or distribution in any manner. This document
may not be copied# scanned# duplicated# orwarded# distributed# or posted on a website# in whole or part. 10-14
Table 10*8 # (PP Plastics )nc* ProForma $alance %heet 9nd of
First 2ear -.000s/
8/10/2019 IPPTChap010 hisrich
15/20
2014 by McGraw-Hill Education. This is proprietary material solely or authori!ed instructor use. "ot authori!ed or sale or distribution in any manner. This document
may not be copied# scanned# duplicated# orwarded# distributed# or posted on a website# in whole or part. 10-1%
$rea"#9ven &nalysis
Breakeven +olume of sales wherethe venture neither ma"es a profitnor incurs a loss
The brea"#even formula
$79-:/ ;
8/10/2019 IPPTChap010 hisrich
16/20
8/10/2019 IPPTChap010 hisrich
17/20
2014 by McGraw-Hill Education. This is proprietary material solely or authori!ed instructor use. "ot authori!ed or sale or distribution in any manner. This document
may not be copied# scanned# duplicated# orwarded# distributed# or posted on a website# in whole or part. 10-1'
Figure 10*1 # ?raphic)llustration of $rea"even
8/10/2019 IPPTChap010 hisrich
18/20
2014 by McGraw-Hill Education. This is proprietary material solely or authori!ed instructor use. "ot authori!ed or sale or distribution in any manner. This document
may not be copied# scanned# duplicated# orwarded# distributed# or posted on a website# in whole or part. 10-1(
Pro Forma %ources and&pplications of Funds
%ummari6e all the projected sourcesof funds available and how thesefunds will be disbursed
%ources of funds Operations 3ew investments Long#term borrowing %ale of assets
8/10/2019 IPPTChap010 hisrich
19/20
2014 by McGraw-Hill Education. This is proprietary material solely or authori!ed instructor use. "ot authori!ed or sale or distribution in any manner. This document
may not be copied# scanned# duplicated# orwarded# distributed# or posted on a website# in whole or part. 10-1)
Pro Forma %ources and&pplications of Funds
@ses )ncrease assets Aetire long#term liabilities Aeduce owner or stoc"holdersB euity Pay dividends
8/10/2019 IPPTChap010 hisrich
20/20
2014 by McGraw-Hill Education. This is proprietary material solely or authori!ed instructor use. "ot authori!ed or sale or distribution in any manner. This document
%oftware Pac"ages
Trac" financial data and generatefinancial statements
Present different scenarios andassess their impact on the pro formastatements