When constructing pro forma financial statements, which of the following steps should be completed first?
A)Forecast next period's balance sheet.
B)Determine the additional funds needed, AFN, to support expected growth.
C)Forecast next period's income statement.
D)Consider the impact of external financing on the additional funds needed (AFN) to determine how much additional interest or dividends must be paid to support expected growth that is, consider financing feedbacks.
E)Determine whether the firm is operating above or below its operating breakeven point.

Question

Quizplus · Accepted Answer

The first step in constructing pro forma financial statements is to forecast next period's income statement. This allows for the determination of expected revenues, expenses, and net income which can inform decisions on external financing or other financial decisions.

When Constructing Pro Forma Financial Statements, Which of the Following