Deck 7: Pro Forma Financial Statements

Question 1

Pro Forma financial statements include:

A) pro forma income statement
B) pro forma balance sheet
C) pro forma statement cash flows
D) A and B
E) A, B, and C

Answer 1

E

Question 2

The first step in creating pro forma financial statements is:

A) sales forecasts
B) expense forecast
C) financing forecasts
D) A and B
E) A, B, and C

Answer 2

A

Question 3

Preparing pro forma financial statements requires at least:

A) No iterations
B) 1 iteration
C) 2 iterations
D) 3 iterations
E) 4 iterations

Answer 3

C

Question 4

Methods for estimating expenses for an existing business include:

A) Assuming all expenses will remain a fixed percentage of sales
B) Assuming that all expenses will increase at specific percentages
C) Assuming all expenses will remain the same
D) A and B
E) A, B, and C

Question 5

In analyzing pro forma financial statements, you should include at the minimum:

A) Worst case
B) Worst case and most likely case
C) Best case and worst case
D) Best case and most likely case
E) Worst case, best case, and most likely case

Question 6

The worst case scenario will include:

A) The largest revenue, the largest expense, the largest volume
B) The largest revenue, the lowest expense, the largest volume
C) The lowest revenue, the largest expense, the largest volume
D) The lowest revenue, the lowest expense, the largest volume
E) The lowest revenue, the lowest expense, the lowest volume

Question 7

Preparing sales forecast of a new business may require:

A) Primary market research
B) Secondary market research
C) Industry analysis
D) A and B
E) A and C

Question 8

Since sales forecast is a critical element in preparing pro forma statement, entrepreneurs should be evaluated on

A) their ability to provide a precise forecast
B) their thought process and assumptions
C) their accuracy in creating the financial models
D) the amount of time and effort they devoted to the forecast
E) All of the above

Question 9

When outside investors and lenders review a company's financial statements, they look for

A) Increasing sales
B) Decreasing expense
C) Increasing cash flows
D) Sufficient cash flows to service debt and provide adequate return
E) All of the above

Question 10

Long-term debt and equity should be

A) The first items to include in creating pro forma statements because entrepreneurs have no control over debt and equity
B) The last items to include in creating pro forma statements because entrepreneurs have more control over debt and equity compared to sales and expenses
C) Part of the iterative process because entrepreneurs may have to change their business plan if debt and equity are limited
D) A and B
E) A, B, and C