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PRO FORMA INCOME STATEMENT ($millions) Total operating revenues 78 Less Expenses 57 Less Depreciation 9 Earnings before interest and taxes 12 Less Interest 2 Net

PRO FORMA INCOME STATEMENT

($millions)

Total operating revenues

78

Less Expenses

57

Less Depreciation

9

Earnings before interest and taxes

12

Less Interest

2

Net income before taxes

10

Less taxes @ 10%

1

Net income

9

PRO FORMA BALANCE SHEET

Assets:

Cash

9

Other current assets

18

Net Fixed Assets

40

Total Assets

67

Liabilities and Equities:

Accounts payable

12

long-term debt

18

Stockholders' Equity

37

Total Liabilities & Equities

67

a.

Calculate the following profitability ratios and explain to Andrew and Larry whether the business looks profitable:

i. Profit margin

ii. Return on Assets

Also, explain and calculate the:

iv. Operating cash flow

iii. Return on Equity

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