To talk about pro foma balance
sheets in the context of strategic planning,
it is first necessary to understand strategic planning. Note that
planning examines a company's present to measure it against its
past so to plan for its future while a
forma balance sheet projects a company's accounting into the
future based on hypothetical "as if" assumptions about the company's
activity.
Strategic planning
is planning a company does to move to a new set of objectives and goals; to renew or
update its vision for itself and its values for its conduct in the marketplace and in
the world; to evaluate performance compared to expectation as established in the
original company business plan.
Pro forma balance sheets
provide information about future asset management and about projected financial
soundness, especially by highlighting debt-to-equity ratios. Pro forma balance sheets
include current and long-term assets as well as current and long-term liabilities.
An advantage to using a pro
forma balance sheet during strategic planning relates to strategic planning
identification of strengths, weakness, threats, opportunities (through SWOT analysis)
while identifying areas of needed or desired development. A pro forma will provide for
strategic planners the projected financial position to inform on what expected resources
might be used to meet development interests and needs. A
disadvantage to a pro forma balance sheet is that all
information is "best estimate" of "as if" data: estimations based on accounting as if
the company continues at status quo. It is "a projection showing a
business's financial statements after the completion of a planned transaction" or after
strategic planning is implemented (
No comments:
Post a Comment