Comsats university of Information and technology Lahore campus

2. MUHAMMAD UMAIR
MANAGEMENT SCIENCES SEMESTER 4TH
Group Members:
• Sadia Razaq
• Muhammad Umair
• Arslan Ali
FINANCIAL PLAN

3. MUHAMMAD UMAIR
MANAGEMENT SCIENCES SEMESTER 4TH
Presentation Topics:
• Financial Objectives
• Pro forma Income Statement
• Pro forma Cash Flows
• Pro forma of Balance Sheet
MUHAMMAD UMAIR

4. Efficiency
Utilization of assets
FINANCIAL OBJECTIVES
OF A FIRM
4
Profitability
A company ability to make more
profit
Liquidity
A company ability to meet a short
term obligations
Stability
The over all health of financial
structure of the firm, particularly
as it relate to its debt-equity ratio

5. PRO FORMA INCOME STATEMENT:
MUHAMMAD UMAIR MANAGEMENT SCIENCES
SEMESTER 4TH
Definition:
1. Pro forma income statements project the revenue, expenses and
net income of a business for the future.
2. The accounting staff estimates these numbers based on historical
costs and future projections.
3. Pro forma income statements do not promise accuracy.
4. Instead, they calculate the most likely future profits of the business.
Ref: (The Advantages of Pro Forma Income Statements | eHow http://www.ehow.com/list_7464944_advantages-pro-forma-income-statements.html#ixzz2Sytyghle)

6. PRO FORMA INCOME STATEMENT:
MUHAMMAD UMAIR MANAGEMENT SCIENCES
SEMESTER 4TH
• A pro forma income statement is similar to a historical income
statement, except it projects the future rather than tracks the past.
• Pro forma income statements are an important tool for planning future
business operations. If the projections predict a downturn in
profitability, you can make operational changes such as increasing
prices or decreasing costs before these projections become reality.
• Pro forma income statements provide an important benchmark or
budget for operating a business throughout the year. They can
determine whether expenses can be expected to run higher in the first
quarter of the year than in the second.

7. PRO FORMA INCOME STATEMENT
(CONT)
MUHAMMAD UMAIR
MANAGEMENT SCIENCES SEMESTER 4TH
• Projected net profit calculated from project revenues
minus projected costs and expenditures.
(Net Profit = Revenue – Cost)
• It tells how much revenue is transformed into the net
income.

8. PRO FORMA INCOME STATEMENT (CONT)
MUHAMMAD UMAIR
MANAGEMENT SCIENCES SEMESTER 4TH
• Revenue is the money received from the sales of products
before the expenses.
Sales are the major source of revenue and
since other operational activities and
expenses relate to sales volume, It is
usually the first item that must be defined.
• Sales by month is calculated first.
• Basis of the figures
• Marketing research,
• Industry sales,
• Trial experience,
• Forecasting,
• And financial data on similar start-ups.

9. PRO FORMA INCOME STATEMENT
(CONT)
MUHAMMAD UMAIR
MANAGEMENT SCIENCES SEMESTER 4TH
Purpose
• The purpose of the income statement is to show the managers or the
investors whether the company has made or lost money in the reported
period.

10. CREATING PRO FORMA INCOME
STATEMENT:
MUHAMMAD UMAIR
MANAGEMENT SCIENCES SEMESTER 4TH
 Look the financial performance before the year.
 Compare it to the current year figures.
• Using the changes to make projections into the future

11. PRO FORMA OF INCOME STATEMENT
MUHAMMAD UMAIR
MANAGEMENT SCIENCES SEMESTER 4TH

12. EXAMPLE OF INCOME STATEMENT
MUHAMMAD UMAIR
MANAGEMENT SCIENCES SEMESTER 4TH

13. PRO FORMA OF CASH FLOW STATEMENT
MUHAMMAD UMAIR
MANAGEMENT SCIENCES SEMESTER 4TH
• Projected cash available calculated from projected cash accumulations
minus projected cash disbursements.

14. PRO FORMA OF CASH FLOW STATEMENT
MUHAMMAD UMAIR
MANAGEMENT SCIENCES SEMESTER 4TH
• Cash flows is the result from the difference between
the actual cash receipts and cash payments.
• It is not the same as profit. Because profit is the
result of subtracting expenses from sales.
• Sales may not be regarded as cash.
• Cash flow can be projected using
the indirect or direct method.

15. METHODS OF CASH FLOW STATEMENT
MUHAMMAD UMAIR
MANAGEMENT SCIENCES SEMESTER 4TH
Direct
• A direct statement of cash flows will identify a company's sources and uses of cash.
The statement has three sections that report cash receipts and cash payments. These
sections include operating, investing and financing activities.
• Operating activities include receipts and payments from normal business operations;
• investing activities include the purchase or sale of long-term asset and investments;
• financing activities relate to borrowing money and making payments to creditors
and investors.
Indirect
• The indirect statement of cash flow method does not include as much information
as the direct method. Companies prepare the indirect statement by starting with net
income as reported in the income statement. Accountants then make adjustments to
this figure for all non-cash items. Essentially, the indirect preparation method takes an
accrual-based income statement and converts it to a cash-basis income statement.

16. STATEMENT OF CASH FLOWS:
THE INDIRECT METHOD
MUHAMMAD UMAIR
MANAGEMENT SCIENCES SEMESTER 4TH

17. PRO FORMA CASH FLOW (CONT.)
MUHAMMAD UMAIR
MANAGEMENT SCIENCES SEMESTER 4TH
Entrepreneurs must make monthly projections of cash.
• If disbursements are greater than receipts entrepreneur must either
borrow funds or have cash in a bank.
• Large positive cash flows need to be invested or deposited in a
bank for periods when disbursements are Less than receipts.
• Determining the exact monthly receipts and disbursements is
difficult.
• Pro forma cash flow is based
on best estimates.

18. MPP PLASTICS INC., PRO FORMA CASH FLOW,
FIRST YEAR BY MONTH ……..
MUHAMMAD UMAIR
MANAGEMENT SCIENCES SEMESTER 4TH

19. NECESSITY FABRIC PRO FORMA CASH FLOW,
FIRST YEAR BY MONTH ……..
MUHAMMAD UMAIR MANAGEMENT SCIENCES
SEMESTER 4TH

20. MUHAMMAD UMAIR MANAGEMENT SCIENCES
SEMESTER 4TH
BALANCE SHEET
A pro forma balance sheet uses
predictions to calculate future
assets.
The best approach to use in developing the
pro forma balance sheet is the judgmental
approach.

21. PRO FORMA BALANCE SHEET
MUHAMMAD UMAIR
MANAGEMENT SCIENCES SEMESTER 4TH
• A pro forma balance sheet is a financial document that
discloses a business’s assets, liabilities, and equity at a
specific point in time.
• It is used to predict the future state of a company's health.

22. BALANCE SHEET INCLUDES
22
MUHAMMAD UMAIR
MANAGEMENT SCIENCES SEMESTER 4TH

23. Assets: Anything a company
owns that has value.
Note: leased items are not assets.
It is to make a legal agreement by
which money is paid in order to use
land, a building, a vehicle etc
Liabilities: A firm’s financial
obligation.
Accounts Payable(Supplier
Financing)
They represent negative cash flows
for enterprise.
Current assets are assets a company can
easily turn into cash within one year or
less, such as cash, checking, and savings
accounts .
Long-term assets are fixed assets such as
buildings and machinery.
Current liabilities represent amounts the
business will pay off in one year or less.
Examples
bills that you have for
services rendered, utility bills
Long-term liabilities represent things that will
not be paid off in that time frame.
Examples
installment loans and car loans
23
MUHAMMAD UMAIR
MANAGEMENT SCIENCES SEMESTER 4TH

24. Owner's equity= Assets - Liabilities.
Amount owners have invested and/or retained from the
venture operations.
Assets = Liabilities + Equity The fundamental
accounting equation
24
MUHAMMAD UMAIR
MANAGEMENT SCIENCES SEMESTER 4TH

25. GENERAL FORMAT OF BALANCE SHEET
A balance sheet is a statement about where we are now. To
get where we want to go it can be good to do an inventory of
where we currently are.
Assets Liabilities
NW = A - L
So,
NW = A – L is often called the balance sheet
equation.
25
MUHAMMAD UMAIR
MANAGEMENT SCIENCES SEMESTER 4TH
Dr. Cr.

26. MPP PLASTICS INC., PRO FORMA BALANCE SHEET,
END OF FIRST YEAR
MUHAMMAD UMAIR MANAGEMENT SCIENCES
SEMESTER 4TH

27. A Pro Forma Balance
Sheet, Using the
Judgmental Approach,
for Vectra
Manufacturing
(December 31, 2010)
27
MUHAMMAD UMAIR MANAGEMENT SCIENCES
SEMESTER 4TH

28. MUHAMMAD UMAIR MANAGEMENT SCIENCES
SEMESTER 4TH