A balance sheet is a financial statement showing a company's assets, liabilities and shareholder equity at a particular date in time. When a company is considering a major change, such as an acquisition or merger, it may compile a pro forma balance sheet, which is a summarized version of the traditional statement. Using the pro forma statement, the company or potential investors are able to quickly determine the value of EFN, or external funds needed, to balance the company's financial picture. The money for EFN may come from investors or debt financing.
Things You'll Need
- Company financial records
- Spreadsheet program
Gather together the company's financial records. This could include accounting records, bank statements and any accounts owed to or by the organization.
Develop a pro forma statement. Because a balance sheet represents only a particular moment in time, it must be recreated and made current to accurately reflect the company's financial picture. The pro forma balance sheet is much easier to compile than many people believe.
Add together all the company's assets. This includes cash, receivables, land, offices, equipment and investments. Add the value of all of these items and insert a line item on your pro forma statement entitled "Assets" that shows the total amount you have calculated.
Calculate the value of all liabilities. This includes any debt, accounts payable, taxes owed or bonds to be paid. Place the total value of all liabilities on a separate line beneath the assets of your balance sheet.
Determine the value of shareholder equity. This includes the present value of all shares of stock that are currently outstanding. Add this value as the third line item on your balance sheet.
Find EFN by subtracting the value of the total assets from the sum of liabilities and shareholder equity. The resulting value is the amount of external funds (or financing) needed to balance the company's financial books.