A pro-forma balance sheet is a forecasting tool that shows a company’s financial position and account balances in future years based on the company’s financial projections. Most of the account balances on a pro-forma balance sheet are based on a company’s forecasted revenue growth, but the common stock account is based the amount of additional external financing your company will require to fund an increase in total assets as a result of revenue growth. You can calculate your external financing needed (EFN) to determine by how much your common stock account will change.
Find the amounts of net income, sales and dividends, listed on your company’s current income statement. For example, assume that sales are $100,000, net income is $20,000 and dividends are $5,000.
Forecast your sales for next year using your best estimate based on the current economic environment and business conditions. In this example, assume your sales will grow to $120,000.
Find the amounts of total assets and accounts payable, listed on your current balance sheet. In this example, assume that total assets are $200,000 and that accounts payable are $60,000.
Substitute the values into the EFN formula: (a/s)(s1 - s) - (ap/s)(s1 - s) - (ni/s)(s1)((ni - d)/ni). In the formula, “a” represents total assets, “s” represents current sales, “s1” represents forecasted sales, “ap” represents accounts payable, “ni” represents net income and “d” represents dividends. In this example, substitute the values to get the formula: ($200,000/$100,000)($120,000 - $100,000) - ($60,000/$100,000)($120,000 - $100,000) - ($20,000/$100,000)($120,000)(($20,000 - $5,000)/$20,000).
Solve the numbers in each set of parentheses. In this example, solve the numbers to get (2)($20,000) - (0.6)($20,000) - (0.2)($120,000)(0.75).
Solve the remaining numbers in the formula to calculate your EFN. In this example, solve the numbers to get an EFN of $10,000.
Determine, based on your company’s policy on obtaining new funding, the percentage of new funding that your company requires to be funded by issuing common stock. New funding consists of money from issuing either stock or debt. In this example, assume your company policy requires 100 percent of any new funding to come from issuing common stock.
Multiply the percentage by your EFN. Then add the result to the common stock amount from your current balance sheet to calculate the common stock on your pro-forma balance sheet. Continuing the example, multiply 100 percent, or 1, by $10,000 to get $10,000. If common stock on your current balance sheet is $20,000, add $10,000 to $20,000 to get $30,000 in common stock on your pro-forma balance sheet.