1.
Financial Planning & Forecasting :
Profit Planning : Pro Forma
Statements
FAUZIAH BINTI MOHAMAD YUNUS
Finance & Banking Dept.
School of Business Mgmt

2.
 Pro Forma Statement : Projected or forecast,
income statements and balance sheets
 The preparation of Pro-Forma Financial
Statements is important in planning for the
FIRM’S PROJECTED PROFITS.
 From the Pro-Forma financial statements
firm will be able to budget for its future
needs. To prepare financial statements 2
things must be available;-
1) Recent financial statements
2) Forecasted Sales

3.
 Percent of Sales methods : A simple method for developing the
pro forma income statement; its forecast sales and then
expresses the various income statement items as percentages of
projected sales
 Considering types of costs and expenses: Fixed Cost vs
Variable Cost
 Fixed Cost :
 Do not change when sales are increasing ; the results is
increase in profit
 Remain unchanged when sales decline; the cost tend to lower
profits
 Variable cost:
 Example of variable cost: operating expenses, cost of good
sold
 Change when sales increase or decrease

4.
In preparing a pro-forma income statement
we must consider ALL ITEMS IN THE
INCOME STATEMENT THAT ARE
RELATED TO SALES i.e. any changes in
Sales will result in a change in the cost of
the items.

5.
 Spontaneous sources of financing:
 sources of financing that arise naturally during the
course of business
 Normally vary directly with the level of sales
 Example: Accounts Payable, Accrued Expenses
 Discretionary financing:
 Sources of financing that require an explicit decisions on
the part of the firm’s management every time funds raised :
conscious management decision in order to seek additional
financing
 Not vary directly with the level of firm sales
 Example: notes payable, long term debt, common stock,
paid in capital

6.
Pro-forma Balance Sheet
How to Prepare?
Step1 – Find Projected Sales
Projected Sales (S1)= Previous Sales X(1+ % increase in Sales)
Step 2 – Convert each Current asset and Current liability that
are related to sales
Current asset or Current Liability
------------------------------------------------ X Projected Sales
Previous Sales
OR
Current Asset or Liability X (1+% increase in Sales)

7.
Step 3 – Fixed assets – should be Net Fixed Assets – Increase
the NFA with % of Sales.
If – AT FULL CAPACITY OR NEAR CAPACITY.
( Net Fixed Assets X % Increase In Sales)
IF - NOT AT FULL CAPACITY OR EXCESS CAPACITY, FIXED
ASSETS SHOULD NOT BE INCREASED.
Step 4 – Calculate New Retained Earnings
 New Retained Earnings (RE1) = Re0 + Projected Sales x
NPM X (1 – Dividend Payout Ratio)
 RE1= RE0 + Projected Sales X (Net Income/ So) (1 – (Cash
Div./Net Income)
Step 5 – Find Additional Financing Needed (AFN)
 AFN is the balancing figure = Total Projected Assets –
Total Projected Liabilities and Equity