Explore BrainMass
Share

# Pro-forma Financial using percentage of sales method

This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

We have to prepare a Pro Forma on McDonalds

a. Develop a set of pro forma financials (income statement and balance sheet only) for the next fiscal year-end using the percent-of-sales method. Assume that the company's sales have increased by 15%.

Then with the shortfall we need to decide what to do. Either we sell more stock, declare less of a dividend or incur long term debt. But I do not come up with a shortfall can you look at my spread sheet and let me know what I have done wrong. I have attached the web site for the McDonalds financial.

http://www.shareholder.com/visitors/dynamicdoc/document.cfm?documentid=1545&companyid=MCD

#### Solution Preview

I think I see the problem. Given your facts of a 15% increase in sales, you have applied that percentage increase to various current assets and liabilities to arrive at your forecast balance sheet. In reading about the computations used for forecasting, I think it is a simple math problem. In reading the following explanation:

"A simplistic but useful approach is to begin with a percent of sales forecast where an initial assumption is made that the future will be similar to the past. Historical relationships between various balance sheet items and past sales are determined by dividing, for example, last year's accounts receivable balance by last year's sales. (The same observation could be made in forecasting as was made in the ...

#### Solution Summary

The solution explains the results of a review of the mathematical calculations to forecast costs relating to revenue under the percentage of sales method and applies the calculations to cash and accounts receivable to test the procedure.

\$2.19