Framework

Percent-of-sales pro forma forecasting

The question it answers

When planning next year's sales growth, how much external funding must a CFO raise so that the pro forma balance sheet still balances?

Origin
Higgins, 1977; Berk and DeMarzo, 2024
Diagram type
Process by phase
Level of analysis
Firm
Topics
Corporate financeData & analytics
Stack of clay coins beside a rising glass bar chart, icon for finance

Diagram

Percent-of-sales pro forma forecasting

  1. Pro forma procedure
  2. Forecast sales (the driver)
  3. Express variable costs, current assets and liabilities as % of sales
  4. Apply the ratios to forecast sales
  5. Forecast fixed items separately
  6. Plug the financing line so the balance sheet balancesSustainable growth = ROE × retention

Sources

References

Listed A–Z by author surname, Harvard style. A source with a DOI links to https://doi.org/…; one without links to its page or says plainly that it has no DOI.

  1. Berk, J. and DeMarzo, P. (2024) Corporate Finance, 6th edn. Harlow: Pearson.No DOISource page
  2. Higgins, R.C. (1977) ‘How much growth can a firm afford?’, Financial Management, 6(3), pp. 7–16.doi:10.2307/3665251Source page