Financial Plan / budgeting

MUHAMMAD UMAIR MANAGEMENT SCIENCES SEMESTER 4TH

Group Members:

• Sadia Razaq

• Muhammad Umair

• Arslan Ali

FINANCIAL PLAN

ENTREPRENEURSHIP


Presentation Topics:• Financial Objectives

• Pro forma Income Statement

• Pro forma Cash Flows

• Pro forma of Balance Sheet

MUHAMMAD UMAIR

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EfficiencyUtilization of assets

FINANCIAL OBJECTIVES OF A FIRM

ProfitabilityA company ability to make more

profit

LiquidityA company ability to meet a short

term obligations

StabilityThe over all health of financial

structure of the firm, particularly as it relate to its debt-equity ratio


PRO FORMA INCOME STATEMENT:

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 )

http://www.ehow.com/list_7464944_advantages-pro-forma-income-statements.html#ixzz2Sytyghle







PRO FORMA INCOME STATEMENT:

• 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.

PRO FORMA INCOME STATEMENT (CONT)


• 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.



• 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.



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.

CREATING PRO FORMA INCOME STATEMENT:


Look the financial performance before the year.

Compare it to the current year figures.

• Using the changes to make projections into the future

PRO FORMA OF INCOME STATEMENT


EXAMPLE OF INCOME STATEMENT


PRO FORMA OF CASH FLOW STATEMENT


• Projected cash available calculated from projected cash accumulations minus projected cash disbursements.

PRO FORMA OF CASH FLOW STATEMENT


• 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.

METHODS OF CASH FLOW STATEMENT


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.

STATEMENT OF CASH FLOWS: THE INDIRECT METHOD


PRO FORMA CASH FLOW (CONT.)


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.

MPP PLASTICS INC., PRO FORMA CASH FLOW, FIRST YEAR BY MONTH ……..


NECESSITY FABRIC PRO FORMA CASH FLOW, FIRST YEAR BY MONTH ……..



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.

PRO FORMA BALANCE SHEET


• 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.

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BALANCE SHEET INCLUDES

Owner’s Equity

Liabilities

Assets


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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.Examplesinstallment loans and car loans


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OWNER’S EQUITY

Owner's equity= Assets - Liabilities.

Amount owners have invested and/or retained from the venture operations.

Assets = Liabilities + Equity

The fundamental accounting equation


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GENERAL FORMAT OF BALANCE SHEETA 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.


Dr. Cr.

MPP PLASTICS INC., PRO FORMA BALANCE SHEET, END OF FIRST YEAR


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A Pro Forma Balance Sheet, Using the Judgmental Approach, for Vectra Manufacturing (December 31, 2010)



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