Hi everybody. In this class we are going to construct a Pro Forma statement using Samsung Electronics' historical financial statements. Samsung has about 242 trillion Korean Won of assets and its fixed assets of about 91 trillion Korean Won. Samsung's long-term debt is relatively small compared to its total assets. Samsung's sales is about 200 trillion Korean Won, and its cost of goods sold is about 104 trillion Korean Won. Samsung's net income is about 18 trillion Korean Won. In order to make Pro Forma statements, you need to make some assumptions about sales growth. We assume that sales will grow at 5% rate for the period between 2016 and 2020 and at 1% rate after 2021. Samsung's fixed asset is about 39% of total assets and long-term debt is about 6% of total assets for the past 5 years. Using these assumptions, we can develop pro forma balance sheet. First, let us start with expected assets for year 2016. It is assets of year 2015 times 1 plus growth rate for 2016. So, the expected total assets for year 2016 are about 254 trillion Korean Won. Using the same formula, you can estimate all assets for years following until year 2020. For the year 2021, we change the growth rate from 5% to 1%. So Samsung's total assets in year 2021 are total assets in year 2020 times 1 plus growth rate of 1%. The estimated assets are about 312 trillion Korean Won. Next, let's make fixed asset estimation. Samsung's fixed asset is about 39% of total assets. So the estimated fixed asset will be 39% of estimated total assets. The estimated fixed asset is about 98.7 trillion Korean Won for year 2016. You can make an estimation of fixed asset over the rest of the estimation period in the same way. Next, let's make long-term dept estimation. Samsung's long-term debt is about 6% of total assets. So estimated long term debt for year 2016 is 6% times estimated total assets of year 2016. So, the estimated long term debt for year 2016 is about 14.6 trillion Korean Won. We can make the estimated long-term debt for the rest of the period in the same way. This table shows you the summary of estimated total assets, fixed asset and long-term debt. Next, we assume cost per sale, and depreciation per fixed asset using the past five year's history. We are using five year average here, but you can use any years of history that you feel are appropriate for estimation. Samsung's cost per sale is about 78%, and its depreciation per fixed asset is about 21%. Samsung's interest rate is estimated using the ratio of interest expense to long term debt, and it is about 6%. Samsung's effective tax rate is estimated using the ratio of taxes to earnings before tax, and it is about 22%. Pro forma income statements start with estimated sales. Samsung's estimated sales for year 2016 is sales of 2015 times 1 plus sales growth rate of 5%. So the estimated sales is about 210.6 trillion Korean Won for year 2016. We can do the same for the years until year 2020 and get estimated sales. For sales in year 2021 and after, the growth rate is assumed to be 1%, so it is sales of year 2020 times 1 plus sales growth of 1%. The estimated sales amount is about 258 trillion Korean Won for year 2021. Next, cost of goods sold is about 78% of sales. So you can simply multiply sales by 78% to get estimated cost of goods sold. Samsung's estimated cost of goods sold is about 163 trillion Korean Won for year 2016. You can do the same for the following years. Samsung's depreciation is about 21% of fixed asset. So depreciation of 2016 is sales of 2016 times 21%. So it's depreciation is about 21 trillion Korean Won for year 2016. You can do the same for the rest of the period. EBIT is sales minus cost of good sold minus depreciation. So Samsung's estimated EBIT for year 2016 is about 26 trillion Korean Won. You can do the same for the rest of the period. Interest expenses are estimated about 6% of long term debt. So estimated interest expense for year 2016 is about 859 billion Korean Won. You can do the same calculation for the rest of the estimation period. Tax rate is about 22% of earnings before tax. So EBIT minus interest times tax rate of 22%, is the estimated tax amount. So the estimated tax amount for year 2016 about 5.6 trillion Korean Won. You can do the same or the rest of estimation period Net income is EBIT minus interest expense minus tax. So Samsung's estimate net income for year 2016 is about 19.7 trillion Korean Won. And you can do the same for the rest of the estimation period. This table shows you the summary of pro forma income statement of Samsung Electronics.