What is a Pro Forma Cap Table? It is a financial document that portrays the financial statistics of an enterprise at a given point of time. The document combines financial information of the enterprise to highlight the current value of its total assets, the percentage of shares owned by shareholders, and the rate of dilution during different periods of time. The document also depicts an analysis of the management's goals and strategies to achieve those targets. It is often used by finance analysts, management consultants, actuaries, and investment bankers.
There are two types of pro forma cap tables that are commonly used by investors.
Two12 of them is the one that presents shareholders with an overview of the enterprise's current assets, liabilities, revenues, and growth rates. The other type presents information regarding short and long term financing options available to the corporation.
Two12 prefer the one that presents the historical data in the form of tables. This means that it gives details about the company's capitalization as it evolved through time and the evolution of its income statement.
Every pro forma cap table allows the investors to put in the current value of the equity as well as the net worth of capitalized assets. This will allow investors to determine whether the price of the shares has risen or fallen within the last two to three years. Investors can choose to view the value of the enterprise's common equity as compared to that of the preferred stock or their own shares of stock. One important detail that investors need to notice is the ratio of net worth to equity, which is known as EBIT. Investors will need to compare the annualized earnings per share and the EBIT for each year since the start of the business in order to determine whether the rate of decline in the market value has been stable over the long term period.
Every pro forma cap table has an Earnings Growth Factor that measures the rate of growth of earnings per share throughout the business operations. It is calculated based on the total number of shares outstanding and includes all dividends received by the corporation during the year. Dividends are usually declared at the dividend rate during the annual meeting of the shareholders. It may be declared in the annual report filed with the Securities and Exchange Commission by the board of directors or by the management. There are some states that require the disclosure of this indicator to the potential shareholders.
An investor will also find out the PEG ratio. This refers to the profit margin, which is calculated as the annual earning per share divided by the price per share. This gives the exact value of the enterprise's profit margin as reflected in market. Another important detail that the investor must note is the ratio of assets to liabilities. This is determined by adding the current value of all assets minus the current value of all liabilities.
The last detail included in the pro forma cap tables of different companies is the ownership structure. This information provides the details about the ownership stake of the shareholders and is considered as very important by the investors. The usual forms of ownership include common shares, preferred stocks, debt holders and equity holders. Usually, if there are more shareholders, there is more control and there is greater liquidity of funds within the firm.
Other important factors that can be noted on the what is a pro forma cap table are the ownership history of the firms. It should be noted that the number of years for which the shareholders have owned the firm should be noted. This helps the investors in analyzing the credit worthiness of the firm. The overall financial performance of the firms and the viability of its business plans are also examined in the analysis of these types of tables.
It is not mandatory to use the pro forma Cap table when calculating the value of the business.
Two12 of the business is given in terms of its current market value. However, it is recommended that the investors create a pro forma Cap table of their own so that they can create an independent valuation of the business. The investors can create this type of valuation with the help of professionals and can include the input of different external factors. This allows the investors to create a valuation of the business that is not dependent on the opinions and calculations of other people involved in the business.