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Pro Forma Financial Statements

INSTRUCTIONS: Using the base pro forma financial statements, refine and realistically quantify the following recommendations and prepare a set of modified pro forma statements implementing these recommendations in order to meet the goal of total debt/equity of 60% or less. Justify revised recommendations and the resulting impact on the organization's financial plan.

1. Reduce dividend payout to shareholder
2. Take additional equity
3. If recommendation #1 and/or #2 is not possible, the forecasted sales growth will need to be reduced

PLEASE HELP! I am completely confused on how this is done. Attached are the original base pro forma financial statements.


Solution Preview

See the attachment.

We have remember that we are trying to reduce the debt/equity ratio. All action which will increase the equity should also result in decreasing debt to if the actions reduce the assets, then correspondingly the debt should be reduced.

1. Reduce dividend payout to shareholder

In this case, the maximum the dividend that can be reduced is to make it zero. The reduction dividend will result in retained earnings going up and the difference I have adjusted in the Accounts Payable to balance the balance sheet.

Even if we reduce the dividend to zero, this does not ...

Solution Summary

The solution explains how to prepare proforma statements given the required changes