Pro Forma Balance Sheet Linked to Balance Sheet in 3 Ways (CH 4.2)
1. Retained earnings from the forecasted income statement increase the forecasted equity account on the balance sheet.2. The depreciation from the forecasted income statement decreases the forecasted fixed assets on the balance sheet. The new net fixed assets (think: PP&E) equals the prior net fixed assets from the balance sheet minus the forecasted depreciation from the income statement plus forecasted CAPEX. (Recall CAPEX is the net capital expenditures like when we did free cash flows earlier in the text.)3. The forecasted interest expense on the income statement depends on the interest-bearing liabilities on the forecasted balance sheet.