Full Answer Section

Income Statement:

1. Revenues: Locate the “Net Sales” or “Total Revenue” line item in the downloaded 10-Q. This represents the revenue for the most recent quarter.
2. Growth Rate: Identify the percentage change in revenue from the previous quarter to the current quarter. This information might be available in the 10-Q’s Management Discussion and Analysis (MD&A) section or footnotes.
3. Projected Revenue: Apply the growth rate from step 2 to the current quarter’s revenue to estimate the revenue for the next quarter.

Example:

• Current Quarter Revenue: $10,000,000
• Growth Rate: 5% (from previous quarter to current)
• Projected Revenue for Next Quarter: $10,000,000 * (1 + 0.05) = $10,500,000

1. Cost of Goods Sold (COGS): Analyze the 10-Q to understand the historical relationship between COGS and Revenue. Often, COGS has a proportional relationship with revenue. You can estimate COGS for the next quarter using the historical percentage of COGS to revenue.

Example:

• Historical COGS/Revenue Ratio: 60%
• Projected Revenue for Next Quarter: $10,500,000
• Projected COGS: $10,500,000 * 0.60 = $6,300,000

1. Operating Expenses: Carefully examine the 10-Q to identify operating expenses that are variable (change with revenue) and fixed (remain constant). Variable expenses might include commissions or delivery costs, while rent and salaries could be fixed expenses. Analyze historical trends and management discussions to determine if any significant changes in operating expenses are expected for the next quarter. Project variable expenses based on the revenue growth rate and keep fixed expenses constant.
2. Interest Expense and Other Expenses: Analyze the 10-Q to understand these expenses and project them based on historical trends or any mentioned changes in the 10-Q.
3. Tax Expense: The tax expense is typically calculated as a percentage of pre-tax income. Project the tax expense based on the projected pre-tax income and the historical effective tax rate.

Balance Sheet:

1. Current Assets: Analyze the 10-Q to understand the composition of current assets (cash, inventory, receivables). Project changes based on historical trends or any significant changes mentioned in the 10-Q (e.g., planned inventory build-up). You can estimate some current assets based on the projected revenue using industry benchmarks or historical ratios (e.g., inventory turnover ratio).
2. Non-Current Assets: Analyze the 10-Q to understand the composition of non-current assets (property, plant, and equipment). Project changes based on any mentioned capital expenditure plans or depreciation schedules.
3. Current Liabilities: Analyze the 10-Q to understand the composition of current liabilities (accounts payable, accrued expenses). Project changes based on historical trends or any significant changes mentioned in the 10-Q (e.g., expected increase in accounts payable due to supplier negotiations). You can estimate some current liabilities based on the projected COGS using industry benchmarks or historical ratios (e.g., payables turnover ratio).
4. Non-Current Liabilities: Analyze the 10-Q to understand the composition of non-current liabilities (long-term debt). Project changes based on any mentioned debt issuance or repayment plans.
5. Shareholder Equity: This will be the balancing item on the Balance Sheet. Once you project all other elements, calculate the difference to arrive at the projected shareholder equity.

Important Note:

This is a simplified approach to pro forma financial statements. Real-world financial forecasting involves complex calculations and considerations. However, this process provides a basic framework to get you started using the downloaded 10-Q from Starbucks.