Analyzing Pro Forma Statements Essay

XYZ Inc.In order to create an chess opening for harvest-home, an analysis of the go withs terse term and commodious term pecuniary backing needs argon assessed to determine strategies for the phoner to manage working capital. The suggested initiative to im prover XYZ telephoner, Inc. revenue over the next tail fin years is by acquiring assets by means of a merger with UVW Company to offer to a greater extent of product X. Companies must be able to manage growth each through the acquisition of assets or through the capital budgeting process. Through the acquisition of assets, impertinent financing allow for be required. development quickly go out allow XYZ Company to gain a larger marketplace share and reinforce its viable arrange in the marketplace. Expanding too rapidly faecal matter exhaust consequences. If the ships company has too much(prenominal) debt-financing and cash flows are reduced the company allow for risk cosmos in efficient to repay its debts. Management must guarantee the blood can grow, what funding whitethorn be needed, and determine the sustainable growth rate.Pro FormaA pro forma story is a method of calculating pecuniary results to emphasize projected figures for a company. A pro forma is intended to give investors a clear view of company operations. For XYZ Company, the pro forma statements will reflect the merger with UVW to maturate more of their best-selling products and adding a tilt of new ones. Management expects gross revenue and be to amplify by 20 portion for the coming year. Forty-one percent of sum total liabilities for the company are loans payable to stockholders then management is reluctant to create spare financing through debt. The company will finance the merger through sale of stocks, and extinction of excess equipment because cash on hand is relatively small. The merger will allow unnecessary extra equipment and stemma to withal be sold to finance the new, united company. Though the merger will increase sales, operating costs are also evaluate to rise to  get the demand for the next five years.A substantial financial reason for a merger is economies of scale. The operating economies will be lower in the unite business firm. Benefits to a merger would include the skill to buy raw materials in mass at lower prices, the possibility of improve interest rates on loans for being a larger company, and better tonus goods through a more efficient 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 reach $4,352,628 in five years. Growth may also improve the effectiveness of the organization. Larger companies brace a number of advantages over smaller firms operating in more throttle markets (Thomas, 2014).Additional funding post-merger will non be needed due to the liquidation of excess assets, and the sale of stock. Based upon the financial s tatements of the XYZ Company, management has decided that acquiring another(prenominal) business in the same labor 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 payroll obligations, inventory purchases, and working out are all included in the pro forma statement for XYZ.ReferencesDileep, R. (2010). Forbes The 12 surmount Sources of vexation 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