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How can sales be used to develop pro forma financial statements?
(Excellent video on Proforma Financial Statements and Preparing a Statement of Cash Flows: https://www.youtube.com/watch?v=9GmekZcOwxQ) +300 words, citation format intext is APA
Sales can be used to develop pro forma financial statements in a few different ways. First, they can be used to forecast future sales and income. Pro forma financial statements are projections of what the company expects its future financial performance will look like, and sales figures provide an important piece of information that helps with this process. By analyzing past and current sales trends, businesses can better estimate how much revenue they will generate in the upcoming year or quarter (DeVincentiis & Moore, 2019).
Second, sales data can also help when forecasting expenses for a particular period of time. Companies need to plan for variable costs such as raw materials or labor in order to ensure their operations run smoothly throughout the year (DeVincentiis & Moore, 2019). Sales figures give companies insight into potential demand so they know how many resources will be needed during certain periods. This allows them to budget accordingly and make sure that expenses don’t exceed revenue generated from those same periods.
Additionally, past sales figures are often used as an indicator when making assumptions about things such as accounts receivable turnover rate or inventory levels (DeVincentiis & Moore, 2019). These metrics help businesses understand how quickly customers pay back money owed and how efficiently inventories are managed respectively; both of which show up on a pro forma statement of cash flows. If a business has accurate enough estimates through careful analysis of past sales data then it is more likely that these parts of the statement become accurate too.
In summary, sales figures play an important role when developing pro forma financial statements since they allow companies to estimate their future income while also providing insight into other components like expenses and asset management ratios (DeVincentiis & Moore, 2019). By thoroughly understanding their current market position through careful analysis of historical trends from past years’ data – companies are able to build detailed projections necessary for creating successful pro formas for investors’ review with confidence in the accuracy provided by historical information derived from modern day selling activities over time..