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Copyright 2000, Irwin/McGraw-Hill.

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2000, Irwin/McGraw-Hill.
puter program is protected by copyright law.

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 Instructions for Using PROFORMA

PROFORMA is intended as a companion to ANALYSIS FOR FINANCIAL MANAGEMENT,

6th edition, by Robert C. Higgins. Some basic familiarity with Microsoft Excel will be helpful,
but not necessary, to use this program.

PROFORMA converts user-supplied information and assumptions about a company into pro
forma financial forecasts for as many as five years into the future. It also provides a ratio
analysis and a sustainable growth analysis of the results. Additional "what-if" analysis can
be easily performed. The program HISTORY, also in this workbook, offers a convenient
way to develop the user-supplied information and assumptions required by PROFORMA.

PROFORMA output is in the form of four, one-page tables:

Table Contents
A Pro forma assumptions
B Pro forma balance sheets 1-5 years
C Pro forma income statements 1-5 years
D Pro forma ratio and sustainable growth analysis

INSTRUCTIONS FOR USE

All of the worksheets in PROFORMA are tied to the Main Menu, from which you selected the
Instructions button. To launch the other worksheets, simply choose the appropriate button from
the Main Menu. You can return to the Main Menu at any time by selecting the Main Menu
button from any worksheet.

You may want to begin by printing a copy of these instructions. To do so, use the regular
Print command in your software. You can print any of the Output Tables this way.

Enter Information and Forecasts

1. Leave the instructions and return to the Main Menu by clicking on the Main Menu button
at the top of this page. At the Main Menu, select Input Data and fill in the fields
in the dialog box. When you have finished, you will see Table A.
2. Table A is where you need to enter your assumptions and forecasts. Fill in the fields
in light blue. You are not required to enter information in every field if the field is not relevant.
You may also customize any label in blue simply by typing over the field name.
3. When you have completed the information in Table A, click on the Analyze button. This
will return you to the Main Menu.
4. To view the output, click on the View Tables button and select the Table you wish to
view. In order to view another table, simply return to the Main Menu and repeat this process.

What If Analysis

If you are interested in doing a "what if" analysis of your initial pro forma forecast, you can do

Analysis for Financial Management, 5th Ed.

12/16/2010 by Robert C. Higgins
Published by Irwin McGraw-Hill
 so by changing your assumptions in Table A. Use the View Tables button to return to Table A.
In Table A, simply change whichever assumptions you wish and click on the Analyze button.
For example, if you originally entered a sales growth of 10 percent and wonder what the forecast
would look like at a 15 percent growth rate, change the 10 to 15 and click on the Analyze button.

Clear

The Clear button on the Main Menu clears all the tables so you can analyze another company.
If you want to save your work, use the Save As command in your software and rename this program.

Discussion of Output

1. The red field labeled "Required External Financing" at the bottom of the Balance Sheets is the
amount of external financing calculated by the computer that is implied by your forecasts.
A positive number in the field implies a need for cash. The ensuing calculations assume
the financing requirements are funded with short-term debt and assess interest expense accordingly.
A negative financing requirement is assumed to be invested in securities and earns interest.
Interest income and expense, and the ratios in Table D, are consistent with these assumptions.

Once you know the sign and magnitude of the external financing requirement, you can fine-tune
your forecast by assuming all or a portion of the financing will be funded with long-term debt
or equity; or that a negative financing requirement will be invested in securities. To enter these
adjustments, return to Table A using the View Output button at the Main Menu. Make your changes
at the bottom of Table A in the fields labeled for fine tuning. Remember that these adjustments
are INCREMENTAL to the forecast numbers. Click the Analyze button when you are finished.

2. The forecast assumes that dividends will be paid only if income available for common is positive.

3. The ratios in Table D are the same as those in Table F of HISTORY. See the instructions to
History for detailed definitions.

Analysis for Financial Management, 5th Ed.

12/16/2010 by Robert C. Higgins
Published by Irwin McGraw-Hill
 Analysis for Financial Management, 5th Ed.
12/16/2010 by Robert C. Higgins
Published by Irwin McGraw-Hill
his program.

Analysis for Financial Management, 5th Ed.

12/16/2010 by Robert C. Higgins
Published by Irwin McGraw-Hill
Table A. Pro Forma Assumptions

Actuals:
Net sales
Net plant
Long-term debt
Owner's equity

Growth in sales (%)

Gross margin (%)

Op. expenses/sales (%)
Non-op income (expense)
Int. rate on excess cash (%)
Interest rate on debt (%)

Income tax rate (%)

Ex. gains (loss) net tax
Other gains (losses)
Preferred dividends

Dividend payout ratio (%)

Minimum cash balance
Collection period (days)
Inventory turnover (x)
Other current assets

Growth in fixed assets (%)

Other investments
Other long-term assets
Payables period (days)
Other short-term debt

Accrued taxes
Other accruals
Current portion l-t debt
Deferred taxes
Other deferrals

Minority interests
Other long-term liabilities
Preferred stock

Once FINANCING has been estimated, use items below for fine-tuning…
Incr. (decr.) in securities
Incr. (decr.) in long-term debt
Incr. (decr.) in equity
Sum adjustments

Analysis for Financial Management, 6th Ed.

12/16/2010 by Robert C. Higgins
Published by Irwin/McGraw-Hill
Table B. Pro Forma Balance Sheets

Dell

$ in Millions
December 31

ASSETS
Cash $- $- $- $- $-
Securities - - - - -
Accounts receivable - - - - -
Inventory #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0!
Other current assets - - - - -

Total current assets #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0!

Net property, plant, etc. - - - - -

Other investments - - - - -
Other long-term assets - - - - -

Total Assets #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0!

LIABILITIES AND SHAREHOLDERS' EQUITY

Short term debt Ext'l Fin Ext'l Fin Ext'l Fin Ext'l Fin Ext'l Fin
Other short-term debt - - - - -
Accounts payable - - - - -
Accrued taxes - - - - -
Other accruals - - - - -
Current portion l-t. debt - - - - -

Total current liabilities - - - - -

L-t. debt and capital leases - - - - -

Deferred taxes - - - - -
Other deferrals - - - - -
Minority interests - - - - -
Other long-term liabilities - - - - -

Total liabilities - - - - -

Preferred stock - - - - -
Owners' equity Err:522 Err:522 Err:522 Err:522 Err:522
Total equity Err:522 Err:522 Err:522 Err:522 Err:522

Total liabilities & equity Err:522 Err:522 Err:522 Err:522 Err:522

External Financing Req'd Err:522 Err:522 Err:522 Err:522 Err:522

Analysis for Financial Management, 6th Ed.

12/16/2010 by Robert C. Higgins
Published by Irwin/McGraw-Hill
 Net sales 0
Net plant 0
Long-term debt 0
Owner's equity 0

Analysis for Financial Management, 6th Ed.

12/16/2010 by Robert C. Higgins
Published by Irwin/McGraw-Hill
Table C. Pro Forma Income Statements

Dell

$ in Millions
December 31

Net sales $- $- $- $- $-
Cost of goods sold - - - - -

Gross profit - - - - -

Operating expenses - - - - -

Operating income - - - - -

Non-op. income (expense) - - - - -

Interest income Err:522 Err:522 Err:522 Err:522 Err:522
Interest expense Err:522 Err:522 Err:522 Err:522 Err:522

Income before tax Err:522 Err:522 Err:522 Err:522 Err:522

Provision for tax Err:522 Err:522 Err:522 Err:522 Err:522

Net income Err:522 Err:522 Err:522 Err:522 Err:522

Ex. gains (loss) net tax - - - - -

Other gains (losses) - - - - -
Preferred dividends - - - - -

Available for common Err:522 Err:522 Err:522 Err:522 Err:522

Common dividends Err:522 Err:522 Err:522 Err:522 Err:522

Added to retained earnings Err:522 Err:522 Err:522 Err:522 Err:522

Analysis for Financial Management, 6th Ed.

12/16/2010 by Robert C. Higgins
Published by Irwin/McGraw-Hill
Net sales 0
Net plant 0
Long-term debt 0
Owner's equity 0

Analysis for Financial Management, 6th Ed.

12/16/2010 by Robert C. Higgins
Published by Irwin/McGraw-Hill
Table D. Pro Forma Ratio and Sustainable Growth Analysis

Dell

PROFITABILITY RATIOS:
Return on equity (%) Err:522 Err:522 Err:522 Err:522 Err:522
Return on assets (%) Err:522 Err:522 Err:522 Err:522 Err:522
Return on inv. captial (%) Err:522 Err:522 Err:522 Err:522 Err:522
Profit margin (%) Err:522 Err:522 Err:522 Err:522 Err:522
Gross margin (%) #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0!

LEVERAGE & LIQUIDITY RATIOS:

Assets to equity (%) Err:522 Err:522 Err:522 Err:522 Err:522
Total liabilities to assets (%) Err:522 Err:522 Err:522 Err:522 Err:522
Total liabilities to equity (%) Err:522 Err:522 Err:522 Err:522 Err:522
Long term debt to equity (%) Err:522 Err:522 Err:522 Err:522 Err:522
Times interest earned (x) Err:522 Err:522 Err:522 Err:522 Err:522
Times burden covered (x) Err:522 Err:522 Err:522 Err:522 Err:522
Current ratio (x) Err:522 Err:522 Err:522 Err:522 Err:522
Acid test (x) Err:522 Err:522 Err:522 Err:522 Err:522

TURNOVER-CONTROL RATIOS:
Asset turnover (x) Err:522 Err:522 Err:522 Err:522 Err:522
Inventory turnover (x) #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0!
Collection period (days) #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0!
Days sales in cash (days) #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0!
Payables period (days) #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0!
Fixed asset turnover (x) #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0!

Pro Forma Sustainable Growth Analysis

1995 1996 1997

REQUIRED RATIOS:
Profit margin (P) Err:522 Err:522 Err:522 Err:522 Err:522
Retention ratio (R) 100.0% 100.0% 100.0% 100.0% 100.0%
Asset turnover (A) Err:522 Err:522 Err:522 Err:522 Err:522
Financial leverage# (T) Err:522 Err:522 Err:522 Err:522 Err:522

Sustainable growth rate (g*) Err:522 Err:522 Err:522 Err:522 Err:522

Actual growth rate (g) 0.0% 0.0% 0.0% 0.0% 0.0%

#Defined as assets divided by beginning-of-period equity

Analysis for Financial Management, 6th Ed.

12/16/2010 by Robert C. Higgins
Published by Irwin/McGraw-Hill
 DialogData

Month Date Analysis Years

January 1 1
Februrary 2 2
March 3 3
April 4 4
May 5 5
June 6
July 7
August 8
September 9
October 10
November 11
December 12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31

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 ProformaDialog

Input Proforma Data

Company Name Dell

Currency, Scale $ in Millions

(e.g. $ in Millions)

Fiscal Year End January 1

Februrary 2
March 3 OK
First Analysis Ye... April
1995 4
May 5
June 6 Cancel
Number of Years 1
July 7
to Analyze 2
August 8
3
September 9
4
October 10
5
November 11
December 12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31

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 TableViewer

PROFORMA Tables

Select The Table You Wish to View OK

Table A: Assumptions
Cancel
Table B: Balance Sheets
Table C: Income Statements
● Table D: Ratio and Sustainable Growth Analysis

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