Connecting Balance Sheet Plugs: A New Integrated Presentation of Pro Forma Analysis

15 Pages Posted: 7 Sep 2011

See all articles by Tom Arnold

Tom Arnold

University of Richmond - E. Claiborne Robins School of Business

Date Written: September 6, 2011

Abstract

Using a “plug” figure or “slack term” within a pro forma analysis is the standard method to make a forecasted balance sheet have assets equal liabilities and equity. The plug is usually stock or long-term debt because either one or a combination of the two, are assumed to be the source of funding for sales growth. In this presentation, a mathematical connection between the two different plug figures is demonstrated allowing for a more integrated presentation of pro forma analysis rather than the perception of each type of plug belonging to a separate independent technique.

Keywords: pro forma analysis, equity plug, debt plug, debt-to-equity ratio, additional funds needed, circularity

JEL Classification: C00, C60, G00, G30, G31, M21

Suggested Citation

Arnold, Thomas M., Connecting Balance Sheet Plugs: A New Integrated Presentation of Pro Forma Analysis (September 6, 2011). Available at SSRN: https://ssrn.com/abstract=1923672 or http://dx.doi.org/10.2139/ssrn.1923672

Thomas M. Arnold (Contact Author)

University of Richmond - E. Claiborne Robins School of Business ( email )

1 Gateway Drive
Richmond, VA 23173
United States
804-287-6399 (Phone)
804-289-8878 (Fax)

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