Financial Reporting And Analysis

Question:

You have already built a spreadsheet for your company with 6 years of historical data. This assignment requires you to prepare Pro Forma financial statements (balance sheet, income statement and statement of cash flows) for the next five years. When creating your pro forma financial statements you should:1. Ensure that all statements articulate within each year and from year to year.2. Provide the assumptions that you have made with respect to each account and the reasoning for your decision (especially for sales). If you decide to simply increase each account x% year over year you should disclose why you have chosen his assumption.3. Ensure that ratios that you calculated during session #3 remain reasonable from the current year to future years and remain in line with your overall assumptions. You should include a schedule of ratios with your completed case.

Answer:

Assumptions:

This report depict about the assumptions which has been taken while performing this study. All the assumptions have been taken according to the last year data and market condition. For preparing the pro forma of balance sheet, income statement and cash flow statement, all the important aspect has been considered and analyzed that the future ratio of the company would be quite similar with last year ratios. It has also been analyzed that the future data of the company would not get more changes than the current data of the company.

All the assumptions has been taken according to 5 year average of the company, average rate of factors stated in the final statements, economic condition and market condition of the company. Assumptions are as follows:

The financial statement of the company could be seen in the attached excel sheet.

Assumption On Income Statement:

Assumption on income statement has been taken according to the last year data and market condition. It has been analyzed that the sales revenue and financial revenue of the company is 166380 which is enhancing on an average by 1.8% and the last year changes are 9.2%. Thus it has been assumed that the net revenue of company would enhance by 10% in 2017 as well as in further years as the market and economic condition would not affect the sales of the company due to the positive strategies of the company.

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 Assumption over operating expenses such as GM Financial Interests, Auto SG&A and Good Will amount for next 5 years have also been assumed according to the average enhancing rate form last 5 year and just last year growth rate. Same as operating expense, Interest & other expense, Interest and Other Income, Net, Gain on Debt, Equity Income, Income before Income Taxes, tax rate etc has also been analyzed according to the average enhancing rate form last 5 year and just last year growth rate.

Assumption On Balance Sheet:

Assumption on balance sheet has been taken according to the last year data and market condition. It has been analyzed that the current and noncurrent assets of the company  is 76203 and 145487 in 2016 which is enhancing on an average by 1.7% and 12.9% and the last year changes are 9.8% and 16.5%. Thus it has been assumed that the net revenue of company would enhance by 10% in 2017 as well as 15% in further years as the market and economic condition would hardly affect the assets of the company due to the positive strategies of the company. It has also found that the other changes in the total assets have also been done accordingly.

 Assumption over liability and shareholder capital such as Current Liabilities, Short-term borrowings, Accounts payable, Accrued salaries and benefits, Long-term debt, excluding current portion, Pension, Non-Controlling Interest, Shareholders’ Equity, Preferred Stock, Common Stock, Paid-In Capital, Retained earnings (accumulated deficit), Other comprehensive income (loss) and Non controlling Interest have also been assumed according to the market changes and growth rate of these factors in the company.

Assumption On Cash Flow Statement:

Assumption on cash flow statement has been taken according to the market condition, 5 year growth rate and last year data. It has been analyzed that the Net cash flows from financing activities, Foreign exchange, Net incr (decr) in cash & cash equivalents, Cash & cash equivalents, beginning of period and Cash & cash equivalents, end of period are (35,643), 17,139, (213), (2,172) and 17,332 in 2016 which is enhancing on an average by 7.4%, 44.9%, 22.8%, 69.1% and -1.3% from last 5 years and in last year the growth rate was 41.5%, 28.6%, 25.2%, -43.7% and -18.2%. Thus it has been analyzed that the factors would enhance by 9%, 59%, -229%, 93%, -198% and 2% respectively in 2017 as well as in further years the growth rate would be 9%, 59%, -229%, 93%, -198% and 2% respectively as the market and economic condition would not affect the cash flow of the company due to the positive strategies of the company.

ASSUMPTIONS on Income Statement Items	2019-2022	2018
Car	0.90%	10%	annual growth rate
Financials	30.00%	37.20%	annual growth rate
COGS	10%	10%	% of sales
Operating expense
GM Financial Interests	40%	15%	% of sales
Auto SG&A	5%	10%	% of sales
Good Will	0%	0%	% of sales
Total operating expenses	45%	25%	% of sales
Interest expense
Interest & other expense	15%	10%	of average debts
Interest and Other Income, Net	-10%	-10%	of average debts
Gain on Debt	-50%	-100%	of average debts
Equity Income	5%	6%	of average debts
Income Before Income Taxes	-40%	-94%	of average debts
tax rate	39%	39%	of income before income taxes
# of shares outstanding			endogenously determined
ASSUMPTIONS on Balance Sheet Items
Current Assets
Cash and Equivalents	-5%	-2%
Short-Term Investments	4%	4%
Receivables, net	17%	10.00%
Inventory	-1%	2.00%
Operating Leases	1%	1.0%
Deferred Income Tax	0%	0%
Other current assets	21%	20%
Total Current Assets	15%	10%
Receivables notes	22%	20%
Equity in net assets	6%	6%
Intangible	-100%	-84%
Buildings, leaseholds and land improvements	9%	1%
Goodwill	26%	20.0%
GM Equipment	84%	50%
Deferred Taxes	5%	20%
Other Assets	12%	32%
Total Non current assets	63%	65%
Total Assets	20%	10%
Liabilities and Stockholders’ Equity
Current Liabilities
Short-term borrowings	39%	30%
Accounts payable	1%	2%
Accrured salaries and benefits	5%	3%
Total Current Liabilities	10%	6%
Long-term debt, excluding current portion	39%	28%
Pension	-7%	-3%
Other	0%	0%
Total Non Current Liab	10%	10%
Total Liabilities	10%	10%
Non-Controlling Interest
Shareholders’ Equity
Preferred Stock	-100%	-80%
Common Stock	1%	2%
Paid-In Capital	3%	2%
Retained earnings (accumulated deficit)	21%	15%
Other comprehensive income (loss)	3%	2%
Non controlling Interest	-21%	-10%
Total Shareholders’ Equity	4%	2%
Total Liabilities and Shareholders’ Eq.	8%	6%	f
No exchange rate effects
Assume: Average useful life	8	10
Depreciation and amortization expense (end. Bal./life)	0.036978	endogenously determined
Implied PPE and goodwill acquisition (disposal)		endogenously determined
ASSUMPTIONS on cash flow Items
Net cash flows from operating activities
Net cash flows from investing activities	9%	9%
Net cash flows from financing activities	59%	59%
Foreign exchange	-229%	-229%
Net incr (decr) in cash & cash equivalents	93%	93%
Cash & cash equivalents, beginning of period	-198%	-198%
Cash & cash equivalents, end of period	2%	2%
	-4%	-4%