Ratios analysis used in preparing pro forma financial statements:
- Provide estimates of financial statement items for one or more future period
- Based on certain ratios’s movement direction
- Estimate next-period revenues based on recent COGS
- Next period sales → operating profit margin → forecast operating profits
Possible changes for key financial variables:
- Sensitivity analysis
- What if questions:
- Effect on net income? if sales increase by 3% rather than 5%
- What if questions:
- Scenario analysis
- Based on specific scenarios
- Specific outcomes for key variables
- Based on specific scenarios
- Simulation
- Probability distribution for key variables are selected