Question
A Pro-forma Income Statement is an income statement that predicts income for your new or revised product or service you are recommending to East Chestnut
A Pro-forma Income Statement is an income statement that predicts income for your new or revised product or service you are recommending to East Chestnut Regional Health System (ECRHS) after one year. It shows the sales ECRHS expects to achieve during that period of time, along with the costs associated with that level of sales. The organization must cover the costs of products or services it delivers (Cost of Sales) and the marketing expenses we estimate to achieve those sales (We estimate these using 7% of total revenues). This will leave us with a projected profit. A good Pro Forma proves out a strategy by showing the expected revenue minus the expected costs and the resulting profit. Conversely, it shows that you can't have $100,000 in forecast sales and $3 million in projected advertising, since that would result in a loss. This is a very simplified exercise to help you understand the concept of a Pro Forma Income Statement. In reality, you would provide a much more in-depth analysis of expenses. For instance, if you were hiring two new sales reps, their salaries must be factored in. will generate in your first year. Projected Year 1 Projected Sales Revenue Cost of Sales (Fixed + Variable Expenses) Gross Profit: (Projected Sales Revenue - Cost of Sales) Marketing Expenses (7% of Sales Revenue) Net Income (Projected Profit): (Gross Profit - Total Marketing Expenses) Net Profit Margin % (Does this amount of profit make sense?) (Net Income/Sales Revenue) Finally, calculate the Net Profit Margin. ($36,000 / $200,000 = .18 or 18%). You will need to analyze if the total net income and total net profit margin fits within the objectives of your organization. Use this form to create your Pro Forma Income Statement. Enter the projected numbers, following the formulas beneath the line item.
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