Analyzing Pro Forma Statements Essay

XYZ Inc.In order to create an first for developing, an analysis of the companys short end pointinal figure and long term financing needs ar assessed to determine strategies for the company to manage on the job(p) capital. The suggested initiative to increment XYZ Company, Inc. revenue over the next atomic number 23 years is by acquiring assets through a merger with UVW Company to bring more of professionalfessional personduct X. Companies must be able to manage growth either through the acquisition of assets or through the capital budgeting process. by means of the acquisition of assets, external financing allow be required. Growing right away will allow XYZ Company to gain a larger trade sh be and reinforce its viable position in the marketplace. Expanding too promptly can have consequences. If the company has too much debt-financing and bullion flows are reduced the company will risk being unable to turn back its debts. Management must ensure the business can grow , what funding whitethorn be needed, and determine the sustainable growth rate.Pro FormaA pro forma statement is a method of calculating financial results to emphasize project figures for a company. A pro forma is intended to give investors a distinct view of company operations. For XYZ Company, the pro forma statements will reflect the merger with UVW to pass water more of their best-selling products and adding a list of new ones. Management expects gross revenue and costs to gain by 20 percent for the coming year. cardinal percent of total liabilities for the company are loans payable to stockholders therefore management is reluctant to create additional financing through debt. The company will finance the merger through sale of stocks, and liquidation of excess equipment because cash on hand is relatively small. The merger will allow uncalled-for extra equipment and inventory to also be sold to finance the new, join company. Though the merger will increase gross sales, o perate costs are also expected to rise tomeet the demand for the next five years.A substantial financial reason for a merger is economies of scale. The run economies will be lower in the combined business firm. Benefits to a merger would include the ability to buy raw materials in wad at lower prices, the possibility of better interest rates on loans for being a larger company, and better quality goods through a more streamlined company. Though fixed costs may increase slightly, overall efficiency is expected to occur. XYZs current net sales are $1,747,698 and expected to grow 20% a year to form $4,352,628 in five years. Growth may also improve the potential of the organization. Larger companies have a number of advantages over smaller firms operating in more limited markets (Thomas, 2014).Additional funding post-merger will not be needed due to the liquidation of excess assets, and the sale of stock. base upon the financial statements of the XYZ Company, management has decide d that acquiring another business in the same industry will create a more efficient and effective company. The revenues earned from the combined business will continue to increase in the next five years. The companys short term and long term financing needs have been addressed. Meeting paysheet obligations, inventory purchases, and expansion are all included in the pro forma statement for XYZ.ReferencesDileep, R. (2010). Forbes The 12 Best Sources of business Financing. Retrieved from http//www.forbes.com/2010/07/06/best-funding-sources-for-small-business-entrepreneurs-finance-dileep-rao.htmlThomas, J. (n.d). Diversification Strategy. Retrieved October 19, 2014 from http//Reference for Business Encyclopedia of Business, 2nd ed. http//www.referenceforbusiness.com/management/De-Ele/Diversification-Strategy.html