FINANCIAL GOALS & PERFORMA STATEMENTS

Financial Goals & Performa Statements

Five Essential Ingredients

Before putting pen to paper and formulating financial goals, it is important to

weave five key principles into your financial goals plan.Here they are in brief:

1. Create Wealth : Find a way to greatly increase the value of what you do. Ask:
"How can I be worth more to the company I work for?" Or start a new income
stream using modern technology. If you know your subject, and want to build an
income stream with growing, diversified revenues.

2. Maintain Wealth : Include in your financial goals a budget that allows you to
spend less than you earn. Invest whatever is left.

3. Increase Your Wealth : Compounding growth will really increase the speed
with which you attain your financial goals. Reinvest the profits from your past
investments.

4. Protect Your Wealth : Build into your financial goals plan a strategy for
protecting your assets. Search out experts in your area who can give advice and
make sure you are protected against litigation.

5. Enjoy Your Wealth : Don't wait until you have accumulated a fortune before
you start enjoying the proceeds of your financial goals. Reward yourself
occasionally. Experience the joy of giving by sharing a percentage of your wealth
to people or causes you care about.

SAMRITI GOEL

MBA LECTURER
 FINANCIAL GOALS & PERFORMA STATEMENTS

When these five essential ingredients are woven into any financial goals plan, the
goals become motivating. Such goals touch emotion; they evolve from just an
academic exercise of necessity into a way of life that touches the sense of
abundance.

Financial Goal Setting - Four Steps

There are no hard and fast rules for implementing a financial goal setting plan. The
important thing is to at least do something as opposed to nothing, and to start
NOW.

Here are four steps you can apply to any financial goal setting exercise:

Step 1: Identify and write down your financial goals, whether they are saving to
send your kids to college or University, buying a new car, saving for a down
payment on a house, going on vacation, paying off credit card debt, or planning for
you and your spouse’s retirement.

Step 2: Break each financial goal down into several short-term (less than 1
year), medium-term (1 to 3 years) and long-term (5 years or more) goals; which
will make this process easier.

Step 3: Educate yourself and do your research. Read Money magazine or a

book about investing, or surf the Internet's investment web sites.

Step 4: Evaluate your progress as often as needed. Review your progress

monthly, quarterly, or at any other interval you feel comfortable with, but at least
semi-annually, to determine if your program is working.

SAMRITI GOEL

MBA LECTURER
 FINANCIAL GOALS & PERFORMA STATEMENTS

If you're not making a satisfactory amount of progress on a particular goal, re-

evaluate your approach and make changes as necessary.

Sometimes when people write down their goals, they discover that some of the
goals are too broad in meaning and nearly impossible to reach, while others may
seem smaller in scope and easier to achieve. Break your goals down into three
separate time categories. By placing a time frame on your goals you are motivating
yourself to get started and helping to allow you the chance to succeed. Just
remember that you can adjust the time frame whenever you want to.

Long-term goals (over 5 years) are those things that won't happen overnight, no
matter how hard you work to achieve them. They may take a long time to
accomplish (hence the reason they are called long term goals), so give yourself a
reasonable amount of time, that are based on your best estimates of what it will
take to achieve them. Examples of long-term goals might include college education
for a child, retirement plan or purchasing a home. Whatever the case, these goals
generally require longer commitments and often more money in the end.

Intermediate-term goals (1-5 years) are the type of goals that can't be executed
overnight but might not take many years to accomplish. Examples might include
purchasing/replacing a car, getting an education or certification, or paying off your
debts like credit cards etc. (depending on the amount).

Short-term goals (within one year) generally take one year or less to achieve,
based on the date the task is needed, the total estimated cost, and the required
savings.

SAMRITI GOEL

MBA LECTURER
 FINANCIAL GOALS & PERFORMA STATEMENTS

What are your goals? To find out, you need to make up a list, decide which
timeline your goal fits into, detail the steps necessary to achieve your goals, then
take action toward reaching those goals. It’s that simple. You might be wondering
where to start with your financial goal settting plan. These are some basic tips to
help you in making the best choices for you.

After looking at these tips, it is best for you to go out and do some research to find
the method(s) that suit you best.

 Begin by taking 5%-10% out of each pay check and put it in a savings
account
 Look into different investment strategies such as IRA’s, stocks, RRSP’s,
mutual Funds, personal investments etc. There are many more and all can
assist you in short and long term goals.
 Start making a budget for yourself that leaves you with some extra money
and follow it
 Use your coupons that is why they are there. It seems like small savings, but
add together you could save 20-30 dollars at each trip to the market.
 Shop around for bargains
 Work with a credit counselor to get help in lowering your monthly expenses
and get rid of your debt

These are just some of the things that you can do when beginning your financial
goal setting plan. The steps to setting goals successfully don’t change, only the
SAMRITI GOEL

MBA LECTURER
 FINANCIAL GOALS & PERFORMA STATEMENTS

methods that you use to go about it. For example: when it is career wise, work to
get noticed; for relationships, work on maintaining your intimacy or getting it
back; in financial goal setting, work to save and invest money etc.

It really is that easy.

Pro Forma Statement

 Pro forma, a Latin term meaning "as a matter of form," is applied to the
process of presenting financial projections for a specific time period in a
standardized format.
 Businesses use pro forma statements for decision-making in planning and
control, and for external reporting to owners, investors, and creditors.
 Pro forma statements can be used as the basis of comparison and analysis to
provide management, investment analysts, and credit officers with a feel for
the particular nature of a business's financial structure under various
conditions.
 Both the American Institute of Certified Public Accountants (AICPA) and
the Securities and Exchange Commission (SEC) require standard formats for
businesses in constructing and presenting pro forma statements.
 "Anyone thinking of going into business should prepare pro forma
statements, both income and cash flow, before investing time, money, and
energy,"

A pro forma income statement is similar to a historical income statement, except it

projects the future rather than tracks the past. Pro forma income statements are an
SAMRITI GOEL

MBA LECTURER
 FINANCIAL GOALS & PERFORMA STATEMENTS

important tool for planning future business operations. If the projections predict a
downturn in profitability, you can make operational changes such as increasing
prices or decreasing costs before these projections become reality.

Pro forma income statements provide an important benchmark or budget for

operating a business throughout the year. They can determine whether expenses
can be expected to run higher in the first quarter of the year than in the second.
They can determine whether or not sales can be expected to be run above average
in June. The can determine whether or not your marketing campaigns need an extra
boost during the fall months. All in all, they provide you with invaluable
information—the sort of information you need in order to make the right choices
for your business.

James O. Gill wrote in his book Financial Basics of Small Business Success. As
a vital part of the planning process, pro forma statements can help minimize the
risks associated with starting and running a new business. They can also help
convince lenders and investors to provide financing for a start-up firm.

But pro forma statements must be based upon objective and reliable information in
order to create an accurate projection of a small business's profits and financial
needs for its first year and beyond.

After preparing initial pro forma statements and getting the business off the
ground, the small business owner should update the projections monthly and
annually.

Uses of Pro Forma Statements

SAMRITI GOEL

MBA LECTURER
 FINANCIAL GOALS & PERFORMA STATEMENTS

1. BUSINESS PLANNING : A company uses pro forma statements in the

process of business planning and control. Because pro forma statements are
presented in a standardized, columnar format, management employs them to
compare and contrast alternative business plans. By arranging the data for the
operating and financial statements side-by-side, management analyzes the
projected results of competing plans in order to decide which best serves the
interests of the business. In constructing pro forma statements, a company
recognizes the uniqueness and distinct financial characteristics of each proposed
plan or project.

Pro forma statements allow management to:

 Identify the assumptions about the financial and operating characteristics

that generate the scenarios.
 Develop the various sales and budget (revenue and expense) projections.
 Assemble the results in profit and loss projections.
 Translate this data into cash-flow projections.
 Compare the resulting balance sheets.
 Perform ratio analysis to compare projections against each other and against
those of similar companies.
 Review proposed decisions in marketing, production, research and
development, etc., and assess their impact on profitability and liquidity.

SAMRITI GOEL

MBA LECTURER
 FINANCIAL GOALS & PERFORMA STATEMENTS

Pro forma statements for each plan provide important information about future
expectations, including sales and earnings forecasts, cash flows, balance sheets,
proposed capitalization, and income statements. Management also uses this
procedure in choosing among budget alternatives. Planners present sales revenues,
production expenses, balance sheet and cash flow statements for competing plans
with the underlying assumptions explained. Based on an analysis of these figures,
management selects an annual budget.

During the course of the fiscal period, management evaluates its performance by
comparing actual results to the expectations of the accepted plan using a similar
pro forma format.

2. FINANCIAL MODELING : Pro forma statements provide data for

calculating financial ratios and for performing other mathematical calculations.
Financial models built on pro form projections contribute to the achievement of
corporate goals if they: 1) test the goals of the plans; 2) furnish findings that are
readily understandable; and 3) provide time, quality, and cost advantages over
other methods.
3. ASSESSING THE IMPACT OF CHANGES: A company prepares pro
forma financial statements when it expects to experience or has just experienced
significant financial changes. The pro forma financial statements present the
impact of these changes on the company's financial position as depicted in the
income statement, balance sheet, and the cash-flow statement. For example,
management might prepare pro forma statements to gauge the effects of a
potential merger or joint venture. It also might prepare pro forma statements to

SAMRITI GOEL

MBA LECTURER
 FINANCIAL GOALS & PERFORMA STATEMENTS

evaluate the consequences of refinancing debt through issuance of preferred

stock, common stock, or other debt.
4. EXTERNAL REPORTING. Businesses also use pro forma statements in
external reports prepared for owners (stockholders), creditors, and potential
investors. For companies listed on the stock exchanges, the SEC requires pro
forma statements with any filing, registration statements, or proxy statements.
The SEC and organizations governing accounting practices require companies
to prepare pro forma statements when essential changes in the character of a
business's financial statements have occurred or will occur.

Financial statements may change because of:

 Changes in accounting principles due to adoption of a generally accepted

accounting principle different from one used previously for financial
accounting.
 A change in accounting estimates dealing with the estimated economic life
and net residual value of assets.
 A change in the business entity resulting from the acquisition or disposition
of an asset or investment, and/or the pooling of interests of two or more
existing businesses.
 A correction of an error made in report or filing of a previous period.

SAMRITI GOEL

MBA LECTURER
 FINANCIAL GOALS & PERFORMA STATEMENTS

When a company changes an accounting method, it uses pro forma financial

statements to report the cumulative effect of the change for the period during
which the change occurred.

The SEC Format

The SEC prescribes the form and content of pro forma statements for companies
subject to its jurisdiction in circumstances such as the above. Some of the form and
content requirements are:

 An introductory paragraph describing the proposed transaction, the entities

involved, the periods covered by the pro forma information, and what the
pro forma information shows.

 A pro forma condensed balance sheet and a pro forma condensed income
statement, in columnar form, showing the condensed historical amounts, the
pro forma adjustments, and the pro forma amounts. Footnotes provide
justification for the pro forma adjustments and explain other details pertinent
to the changes.
 The pro forma adjustments, directly attributable to the proposed change or
transaction, which are expected to have a continuing impact on the financial
statements. Explanatory notes provide the factual basis for adjustments.

5. PRO FORMA STATEMENTS FOR CHANGES IN ENTITY AND

FOR BUSINESS COMBINATIONS : The FASB, the AICPA, and the
SEC have provided significant directives to the form, content, and necessity

SAMRITI GOEL

MBA LECTURER
 FINANCIAL GOALS & PERFORMA STATEMENTS

of pro forma financial statements in situations where there has been a change
in the form of a business entity. Such a change in form may occur due to
changes in financial structure resulting from the disposition of a long-term
liability or asset, or due to a combination of two or more businesses.

 The purpose of pro forma financial statements is to facilitate comparisons of

historic data and projections of future performance. In these circumstances
users of financial statements need to evaluate a new or proposed business
entity on a basis comparable to the predecessor business in order to
understand the impact of the change on cash flow, income, and financial
position.
 Pro forma adjustments to accounting principles and accounting estimates
reformat the statements of the new entity and the acquired business to
conform with those of the predecessor.
 Occasionally, a partnership or sole proprietorship will sell all or part of the
business interest. Sometimes it is necessary, especially if the business is
"going public," to reorganize into a corporation. The financial statements on
a corporation with a very short history are not helpful in a thoughtful
analysis of future potential.
 Similarly, because of the differences in federal income tax liabilities, a
restatement of the predecessor business in historical terms only confuses the
picture. Since the financial statements of the predecessor business do not
contain some of the expense items applicable to a corporation, the pro forma
financial statements make adjustments to restate certain expenses on a
corporate basis.

SAMRITI GOEL

MBA LECTURER
 FINANCIAL GOALS & PERFORMA STATEMENTS

6. ACQUISITION OR DISPOSAL OF PART OF A BUSINESS: For a

company that decided to acquire part of a new business or dispose of part of its
existing business, a meaningful pro forma statement should adjust the historical
figures to demonstrate how the acquired part would have fared had it been a
corporation. Proforma statements should also set forth conventional financial
statements of the acquiring company, and pro forma financial statements of the
business to be acquired.

 A pro forma income statement combines the historical income statement of

the acquiring company and a pro forma income statement of the business to
be acquired for the previous five years, if possible.
 Pro forma adjustments exclude overhead costs not applicable in the new
business entity, such as division and head office expenses.
 The purchase of a sole proprietorship, partnership, Sub-Chapter S
corporation, or business segment requires pro forma statements for a series
of years in order to reflect adjustments for such items as owners' or partners'
salaries and income taxes.

Summary

 Pro forma statements are an integral part of business planning and control.
 Managers use them in the decision-making process when constructing an
annual budget, developing long-range plans, and choosing among capital
expenditures.
 Pro forma statements are also valuable in external reporting.
 Public accounting firms find pro forma statements indispensable in assisting
users of financial statements in understanding the impact on the financial
SAMRITI GOEL

MBA LECTURER
 FINANCIAL GOALS & PERFORMA STATEMENTS

structure of a business due to changes in the business entity, or in accounting

principles or accounting estimates.
 Although pro forma statements have a wide variety of applications for
ongoing, mature businesses, they are also important for small businesses and
startup firms, which often lack the track record required for preparing
conventional financial statements.
 As a planning tool, pro forma statements help small business owners
minimize the risks associated with starting and running a new business.
 The data contained in pro forma statements can also help convince lenders
and investors to provide financing for a start-up firm.

SAMRITI GOEL

MBA LECTURER