Discuss the Most Critical Aspects of a 5 Year Pro-Forma

question 65

Essay

Discuss the most critical aspects of a 5 year pro-forma statement as it relates to risk and valuation
a.Certain factors will weigh more heavily in the attainment of desired financial results.
b.Some of those factors will be facts, but others will be assumptions
c.The assumptions must not merely be noted, but must be questions that the venture is aggressively trying to confirm/deny.
d.The ability to test, iterate, market, and research to answer critical assumptions will directly impact a company's valuation
e.More assumptions can make an investment riskier, but entrepreneurs who aren't able to confirm/deny assumption in time to adapt accordingly are a risky team to invest in.
f.

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Definitions:

Stockholders' Equity

The residual interest in the assets of a corporation that remains after deducting its liabilities, representing ownership interest.

Stock Dividend

A dividend payment made in shares rather than cash, increasing the total number of shares owned by shareholders.

Retained Earnings Statement

A financial statement that shows the amount of earnings a company has kept (retained) over a period, which have not been distributed as dividends to shareholders.

Depreciation Expense

The allocation of the cost of a tangible asset over its useful life, reflecting the decrease in value over time.