This document discusses pro forma financial statements and growth projections. It explains how to create pro forma income statements and balance sheets by varying accounts based on predicted sales growth, such as increasing dividends and retained earnings by 25% of the original amounts. It also discusses external financing options for growth, including debt and equity. The internal growth rate and sustainable growth rate formulas are provided to calculate the maximum growth a company can achieve without external financing based on its return on assets, retention ratio and return on equity. Determinants of a company's growth like profit margin, dividend policy, financial policy and asset turnover are also summarized.

1. 
EXTENDED PRO FORMA
STATEMENT
Carrine Kezia Aulia | 102183022
Min Vatcharavee P. I 102183026

2. OUTLINE
EXTENDED PRO FORMA STATEMENT
The percentage of sales
 Income Statement
 Balance Sheet
External Financing and Growth

3. The Percentage of Sales
INCOME STATEMENT
A financial planning method in which accounts are varied
depending on a firm’s predicted sales level.

4. 
PRO FORMA INCOME
STATEMENT
REVIEW

5. The Percentage of Sales
INCOME STATEMENT
25% growth

6. The Percentage of Sales
INCOME STATEMENT
DIVIDENDS
$44 + ($44 x 25%) = $55
Find the percentage!
(Dividend payout ratio)
44 1
132 3
1/3 X NET INCOME (pro forma)
1/3 X $165 = $55
CASH DIVIDEND
NET INCOME

7. The Percentage of Sales
INCOME STATEMENT
RETAINED EARNINGS
$88 + ($88 x 25%) = $110
Find the percentage!
(Add to retained earnings ratio)
88 2
132 3
2/3 X NET INCOME (pro forma)
2/3 X $165 = $110
Retained Earnings
NET INCOME

8. The Percentage of Sales
BALANCE 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.”

9. The Percentage of Sales
BALANCE 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

10. $ + (increasing sales x percentage of sales)
Projected $ - Original

11. $ + (increasing sales x percentage of sales)Projected $ - Original

12. Three possible source to put
EXTERNAL FINANCING
Short-term borrowing
Long-term borrowing
New equity

13. Net Working Capital (NWC) = 1,200-800 = 400
Net Working Capital (NWC) = Same
300 – 75 = 225
565 – 225 = 340

14. 
EXTERNAL FINANCING
and GROWTH

15. Debt-Equity Ratio
DEBT-EQUITY RATIO
TOTAL DEBT
TOTAL EQUITY 1
GROWTH RATE = 20%
DEBT-EQUITY RATIO
TOTAL DEBT 297.2
TOTAL EQUITY 302.8
0.98
ORIGINAL

17. 
0 % Growth

19. 0% growth

20. 0% growth
0

21. 206
294
0.70

22. 
25 % Growth

24. 25% Growth

25. 0

26. 320
305
1.05

28. 
FINANCIAL POLICY AND
GROWTH
THE INTERNAL GROWTH RATE
THE SUSTAINABLE GROWTH RATE

29. 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.

30. 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

31. 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

32. 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

33. Determinants of Growth
ROE SGR
ROE Retention ratio
4 Factors
1.Profit margin
2.Dividend policy
3.Financial policy
4.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

34. THANK YOU FOR YOUR ATTENTION