One of your friends has prepared the following pro forma to indicate his forecas
ID: 2758036 • Letter: O
Question
One of your friends has prepared the following pro forma to indicate his forecasts for a firm (in millions of dollars). After carefully looking at the estimates, you find that your friend has done some mistakes while preparing this pro forma. You arc required to spot Four problems with this pro forma. (? (You are NOT required to re-work the pro forma). Operating income (after tax) Net interest expense Comprehensive income Net operating assets Net financial obligations Common shareholders' equity Cash flows: Free cash flow Net payout to shareholders The interest expense relates to bonds payable with an effective interest rate of 5% equal to the coupon rate The firm 's tax rate is 35%. There arc no financial assets.Explanation / Answer
Mistakes in this proforma are as follow:
1) Interest expenses can not be same in all years.
2) No provision for Depreciation.
3) Tax Calculation is not considered for operating income after tax.
4) Forgetting about baddebts allowance.
5) Not doing break even analysis.
6) Assumption made in preparing this statement are not listed.
7) Explanation for net payout to shareholder is not given.
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