Case2: Pro-Forma Statement

PetitCo Manufacturing Case

Background

John Small, director of PetitCo Manufacturing, is working as part of a strategic planning group tasked with laying out the future direction of the company. Mr. Small has compiled some information about the company from which he would like to come up with future estimates and trends... i.e. develop a Pro-Forma Income Statement for years six thru 10.

Information

From the sales department, Mr. Small found the following sales and price information. The price has steadily decreased by 3% over the last five years.

	1	2	3	4	5
Unit Sales	310	721	932	1065	1108
Price	$1,000.00	$970.00	$940.90	$912.67	$885.29

From accounting and production Mr. Small received the following cost and expense information. He was also informed that the average taxes were 29%.

	1	2	3	4	5
COGS	$148,800.00	$393,089.20	$461,168.51	$482,285.98	$475,233.53
G&A	$55,023.00	$109,456.00	$137,998.00	$138,032.78	$148,023.45
Selling Exp.	$52,310.86	$78,345.32	$80,004.23	$82,041.56	$78,997.49
Depreciation	$24,000.00	$38,000.00	$32,000.00	$26,000.00	$20,000.00
Interest	$15,000.00	$14,569.00	$14,034.00	$13,456.00	$12,954.00

ProForma

Mr. Small received information on depreciation and interest expenses for the ensuing 5 years.

	6	7	8	9	10
Depreciation	$18,000.00	$17,000.00	$16,000.00	$16,000.00	$16,000.00
Interest	$12,532.00	$11,980.00	$11,611.00	$11,178.00	$10,792.00

The estimations included in the pro-forma statements are critical for the company since many direct investment decisions must be made to meet anticipated sales growth. The IS generated will become the backbone of the financing decisions and cash flow planning for management.

Task:

1. Forecast the above yellow highlighted variables over the next five years (6-10) based upon the information provided above. Present a chart for each variable that shows the previous 5 years and your forecasted 5 years.

(keep in mind, the forecasted values must appear reasonable and feasible)

1. Compile the Pro-Forma Income Statement covering the entire 10 years.
2. Does the future look bright for Mr. Small and PetitCo? Why or why not?

First Year's IS: