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As a result of this analysis abc is looking at its

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As a result of this analysis, ABC is looking at its cost of sales to determine if it is experiencing waste in theproduction process. It is also studying the profitability analyses by product line to determine whether someof the less profitable product lines should be discontinued or changed. If the company can improve itsprofitability, it should be able to pay down some of its debt and lower its interest expense.After the company makes its decisions about operational changes to be made, it will revise the pro formastatements for 20X2 and recalculate the ratios to see whether the changes will create enough improve-ment in the ratios to enable the company to reach its targets. If the revised ratios are satisfactory, ABCwill pursue those operational changes. If the revised ratios are still not satisfactory, the company willreconsider what else needs to be changed in its operations in order to achieve its objectives.After the pro forma financial statements have been revised and the operational changes have been made,the company’s management will need to evaluate its actual results against the pro forma statement todetermine whether its objectives have been met. The primary method of making this determination will bea comparison of the actual ratios and the pro forma ratios.We do not show the revised pro forma financial statements or the revised ratios here.
Top-Level Planning and AnalysisCMA Part 1276© 2017 HOCK international, LLC. For personal use only by original purchaser. Resale prohibited.Other Uses of Pro Forma Financial StatementsPro forma financial statements can alsobe used to evaluate the company’s dividend policy. ABC Industrieshas had a policy of increasing its dividend on its common stock every year, and it has projected a 4%increase in its dividend for 20X2. However, if the company were to reduce the growth rate of the dividend,additional funds would be available to invest in plant, equipment, or inventories; to use to reduce borrowings;or possibly to use to repurchase its stock.
Section CSection CPerformance Management© 2017 HOCK international, LLC. For personal use only by original purchaser. Resale prohibited.277Section CPerformance ManagementPerformance Management represents 20% of the CMA Part 1 exam. Part 1 is a four-hour exam containing 100multiple-choice questions and two essay questions. Topics within an examination part and the subject areaswithin topics may be combined in individual questions. Therefore, we can neither predict how many multiple-choice questions you may get from this section, nor can we predict whether or not you will get any essayquestions from this section. The best approach to preparing for this exam is to know and understand theconcepts well and be ready for anything.

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Term
Fall
Professor
maryam
Tags
Balance Sheet, Generally Accepted Accounting Principles, Pro Forma Financial Statements

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