Pro Forma Statement

THE RELATIONSHIP
BETWEEN CASH
BUDGETING AND PRO
FORMA STATEMENT
GROUP G
Group G Members
 Akangbe omotola177263
 Abegunde Taiwo177205
 Ojo Oluwabukunmi
 Opeyemi Muhammed
 Okpanachi Monica 226450
 Budgeting is the tactical implementation of a business plan according to corporate
finance institute.
 A budget is a quantitative expression of a plan for a defined period of time which
includes among other things planned sales volumes and revenues, resource
quantities, costs and expenses, assets and liabilities and cash flows expressing
strategic plans of business units, organizations, activities or events in measurable
terms.
 Budgeting helps in planning actual operations, coordinating activities of the
organization, comparing the resource requirements of the current plan with the
available resources and provide a standard against which realized operations can
be compared.
Types of budget
 Based on time: long term (between 5 to 10 years), short term (prepared for a year)
and current (prepared for current operations of the business)
 Based on function: functional (relates to any functions of the organization) and
master (is a summary budget)
 Master budget contains operating budget (summarizes the details of operation)
and financial budgets which summarizes the financial consequences of the
operating budgets (include the pro forma statement of financial position,
statement of profit or loss and statement of cashflows.
 Based on capacity: fixed (remains unchanged irrespective of the level of activity
attained) and flexible
 A cash budget is a company’s estimation of cash inflows and outflows over a
specific period of time.
 Components of a cash budget are
1. Cash inflow forecast ( cash receipt)
2. Cash outflow forecast (cash payment)
3. Cash balance
 It is important to note that cash budget includes only transactions where actual
cash will come in and come out. For example it does not include a credit sale for
which cash or payment has not been received. It also does not take into
consideration depreciation and amortisation.
Pro forma statements
 Pro forma statements are financial statements based on hypothetical conditions

and assumptions.
 Pro forma statements are useful in just about any situation involving financial
modeling or projection.
 Pro forma statements are both communication tools and tools for comparison.
They are used by entrepreneurs, investors, accountants, business managers, and
other financial decision makers.
 All serious business plans are accompanied by a standardized set of pro forma
statements.
 They are used to anticipate changes that may affect the business as it grows, plan
for the future and get financed by investors or lenders.
Preparation of pro forma statements
 Starts with preparation of a pro forma statement of profit or loss and other
comprehensive income
 Followed by development of a statement of cash flows
 Then, statement of financial position (balance sheet) may be prepared last
 Pro forma financial statements represent the “numbers” portion of a business, and
the aforementioned statements present the clearest snapshot of what the business’s
finances might look like given the provided assumptions and anchored in
reasonable and reliable indicators
Types of pro forma statements
 Full year pro forma projection: takes into account all the financials for the year up
until the present time, then adds projected outcomes for the rest of the year.
 Financing or investment pro forma projection: it takes into account an injection of
cash from outside source plus any interest payments and shows how it will affect
the business.
 Historical with acquisition pro forma projection: looks at past financial
statements of your business and the business to be bought. Shows what your
financials would have looked like if you made the acquisition earlier.
 Risk analysis pro forma rejection: helps to take the future for a test ride and try
out different outcomes.
Relationship between a cash budget and
pro forma statement
 A pro forma statement and cash budget are tools used for planning in companies
 A pro forma statement projects future amounts a company expects. A cash budget
works alongside the pro forma statement by planning a budget for the future.
 They are both used to make decisions
 A cash budget is a variation of a pro forma financial statement as it anticipates,
based on certain assumptions, the inflow of projected revenues, and the outflow of
funds for a defined future period, usually a fiscal year.
 A cash budget and pro forma statement are 2 distinct financial tools
CASH BUDGET
Pro forma statements: Income statement
PRO FORMA
STATEMENT: CASH
FLOW
PRO FORMA
STATEMENT:
BALANCE SHEET
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THE RELATIONSHIP

 Pro forma statements are financial statements based on hypothetical conditions

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