Info

Net income $ 200

Total

$500

Total

$500

Unless otherwise stated, the financial planners at Computerfield assume that all variables are tied directly to sales and current relationships are optimal. This means that all items will grow at exactly the same rate as sales. This is obviously oversimplified; we use this assumption only to make a point.

Suppose sales increase by 20 percent, rising from $1,000 to $1,200. Planners would then also forecast a 20 percent increase in costs, from $800 to $800 X 1.2 = $960. The pro forma income statement would thus be:

Pro Forma Income Statement

Sales $1,200

Costs

Net income $ 240

The assumption that all variables will grow by 20 percent will enable us to easily construct the pro forma balance sheet as well:

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