Your pro forma income statement shows sales of ​$967 comma 000​, cost of goods sold as ​$511 comma 000​, depreciation expense of $ 100 comma 000​, and taxes of ​$99 comma 680 due to a tax rate of 28 %. What are your pro forma​ earnings? What is your pro forma free cash​ flow?
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Part 1
Complete the pro forma income statement​ below:  ​(Round to the nearest​ dollar.)
Sales
$
 
Cost of Goods Sold
$
 
Gross Profit
$
 
Depreciation
$
 
EBIT
$
 
Taxes (28%)
$
 
Earnings
$


Let's break this down step-by-step.

### Part 1: Pro Forma Income Statement

1. **Sales**: Given as $967,000.

2. **Cost of Goods Sold (COGS)**: Given as $511,000.

3. **Gross Profit**: 
   \[
   \text{Gross Profit} = \text{Sales} - \text{Cost of Goods Sold}
   \]
   \[
   \text{Gross Profit} = 967,000 - 511,000 = 456,000
   \]

4. **Depreciation Expense**: Given as $100,000.

5. **Earnings Before Interest and Taxes (EBIT)**: 
   \[
   \text{EBIT} = \text{Gross Profit} - \text{Depreciation}
   \]
   \[
   \text{EBIT} = 456,000 - 100,000 = 356,000
   \]

6. **Taxes (28%)**: Given that the tax rate is 28%, you calculate taxes as:
   \[
   \text{Taxes} = \text{EBIT} \times 0.28
   \]
   \[
   \text{Taxes} = 356,000 \times 0.28 = 99,680
   \]

7. **Pro Forma Earnings**: 
   \[
   \text{Earnings} = \text{EBIT} - \text{Taxes}
   \]
   \[
   \text{Earnings} = 356,000 - 99,680 = 256,320
   \]

### Summary of the Pro Forma Income Statement:
| **Category**           | **Amount ($)** |
|------------------------|----------------|
| Sales                  | 967,000        |
| Cost of Goods Sold      | 511,000        |
| **Gross Profit**        | 456,000        |
| Depreciation            | 100,000        |
| **EBIT**                | 356,000        |
| Taxes (28%)             | 99,680         |
| **Earnings**            | 256,320        |

### Part 2: Pro Forma Free Cash Flow

Free Cash Flow (FCF) can be calculated as:

\[
\text{FCF} = \text{Earnings} + \text{Depreciation}
\]
Using the values we found earlier:

\[
\text{FCF} = 256,320 + 100,000 = 356,320
\]

### Final Results:
- **Pro Forma Earnings**: $256,320
- **Pro Forma Free Cash Flow**: $356,320

Would you like any further details or clarifications?

#### Related Questions:
1. How would the free cash flow change if depreciation increased?
2. What would happen if the tax rate was 35% instead of 28%?
3. How is EBIT different from operating income?
4. Why is depreciation added back when calculating free cash flow?
5. How does an increase in sales affect gross profit?

**Tip**: Depreciation is a non-cash expense, which is why it’s added back to earnings to calculate free cash flow.

Your pro forma income statement shows sales of $967,000, cost of goods sold as $511,000, depreciation expense of $100,000, and taxes of $99,680 due to a tax rate of 28%. What are your pro forma earnings? What is your pro forma free cash flow?

Learn how to calculate pro forma earnings and free cash flow for a business with $967,000 in sales, $511,000 in cost of goods sold, $100,000 in depreciation, and a 28% tax rate. Detailed step-by-step guide to understanding financial statements and cash flow analysis.

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