Question: Prepare Projected Financial Statements for Nestlé S.A.

Purpose: This exercise is designed to give you experience preparing projected financial statements. Pro forma analysis is a central strategy-implementation technique because it allows managers to anticipate and evaluate the expected results of various strategy-implementation approaches.

Instructions

Step 1 Work with a classmate. Develop a 2016 projected income statement and balance sheet for Nestlé. Assume that Nestlé plans to raise $900 million in 2016 to begin serving Africa, and plans to obtain 50 percent financing from a bank and 50 percent financing from a stock issuance. Make other assumptions as needed, and state them clearly in written form. Use Nestlé's website as needed.

Step 2 Compute Nestlé's current ratio, debt-to-equity ratio, and return on investment for 2014 and 2015. How do your 2016 projected ratios compare to the 2014 and 2015 ratios? Why is it important to make this comparison?

Step 3 Bring your projected statements to class and discuss any problems or questions you encountered.

Step 4 Compare your projected statements to the statements of other students. What major differences exist between your analysis and the work of other students?