Principles of Managerial Finance, 15th Edition by Scott B. Smart, Chad J. Zutter, Lawrence J. Gitman

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4.6 Preparing the Pro Forma Balance Sheet

A number of simplified approaches are available for preparing the pro forma balance sheet. One involves estimating each balance sheet account as a fixed percentage of sales. A better and more common approach is the judgmental approach, under which the firm estimates the values of certain balance sheet accounts and uses its external financing as a balancing, or “plug,” figure. The judgmental approach represents an improved version of the percent-of-sales approach to pro forma balance sheet preparation. The judgmental approach requires only slightly more information and should yield better estimates than the somewhat naive percent-of-sales approach.

To apply the judgmental approach in preparing .

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