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Analyzing Pro Forma Statements - Assignment Example
This assignment talks about the financial forecasting that involves the determination of the future firm financial requirements and is achieved through financial planning with the use of budgets. This essay analyzes the methods used in financial forecasting that can be applicable for ABC Ltd…
The essay "Analyzing Pro-forma Statement" talks about the financial forecasting methods that can be applicable for ABC Ltd to significantly reduce wastage of financial resources. The new initiative would be to market another product of the company. This would lead to an increase in the company’s sales over the forecasted period. Due to increased number of sales, the net fixed assets by the acquisition of new machinery to increase production will also increase. For current assets, an increase in sales will be as a result of increased stock of raw materials, work in progress and finished goods. An increase in credit sales will also increase debtors while more cash will be required to buy more inventories in cash.
The retained earnings will also increase with sales if the firm is operating at a profit. The current liabilities will increase because the increased sales will lead to the purchase of more inventories. Long term capital items such as common stock and additional paid-in capital will not change or increase because they are not directly impacted by an increase in sales as they are always used to finance long-term projects. For ABC Ltd, the assumption of marketing of a new product will result in an increase in sales by 20%. The other items affected will also increase by the same percentage. The property, plant and equipment will increase due to the increased capacity and hence will use up capital. The sources of capital will the increase in accounts receivables and other liabilities and the cash. ...