Adequacy of Funds: Budgets and Pro-forma Statements to Plan Funding of the Production Capacity - Assignment Example

The paper "Adequacy of Funds: Budgets and Pro-forma Statements to Plan Funding of the Production Capacity " is a great example of a business assignment.  A budget is a formal plan that the company used to estimate the probable expenditures and income of the organization during the production period. During the production period, the company engaged in the budgeting process in order to determine the most efficient and effective strategies for making money and expanding its asset base. A budget described the expected month-to-month route a company would take in achieving its goals. It summarized the expected outcomes of production and marketing efforts and provided management benchmarks against which to compare actual outcomes. The budget acted as a control mechanism by pointing out soft spots in the planning process and/or in the execution of the plans. The budget was used as an evaluative for the company to more quickly react and make necessary alterations.

Consequently, the company was able to utilize its Pro-forma statements for its products based on its financial statements. The company’s pro forma financial statements were prepared in advance of any planned transaction, such as new capital investment, or a change in a capital structure such as incurrence of new debt or issuance of equity. The pro forma financial statement modeled the anticipated results of the transaction, with particular emphasis on the projected cash flows, net revenues and taxes.

For instance, during the 3rd quarter, the net profit from operations was computed by taking the operating profit shown in the income statement and adding back investments in the future that were expensed in the 3rd quarter. This helped in measuring how well the managers were able to create revenue from the quarter’s marketing, sales and manufacturing activities. The income statement included the expenditures for R&D and this money was spent to create future business opportunities. Thus, these expenses were added back to the operating profit so that the financial performance measure was entirely focused on current quarter revenues and expenses. The second step involved the total number of shares of stock which was computed by adding all forms of equity investment.