Chapter 19 | Business & Finance homework help
Pro forma or forecasting of income statements and balance sheets involves projecting future performance by taking into account historical trends, current market conditions and other factors. When creating such documents, it is important to consider both external as well as internal data since this provides better clarity about how business will perform in near-term.
Firstly a detailed analysis needs to be conducted on previous financials – this includes comparing key metrics between different periods like assessing sales growth rate or calculating net profit margins etc. Next researchers must analyze existing economic trends while keeping eye out for any potential disruptions that may arise due to external events.
In addition, firms should also evaluate their own internal operations in order to make necessary adjustments; such as reducing cost structure or improving efficiency etc. This way they can better understand implications of certain actions taken on bottom line performance.
In conclusion, pro forma/forecasting of income statements & balance sheets requires looking at various pieces from different angles so that an accurate picture can be painted about organization’s future prospects – doing so helps executives take informed decisions.