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What is a Pro Forma Cap Table? A Pro Forma is simply an accounting chart that shows a companies financial information in a format that is easily understood by a business owner. A Pro Forma does not have to be presented to the actual shareholders. They can also be utilized for the managers of a business who may need to make quick decisions based on the information they are given.
Investors will commonly hear the term “pro forma cap tables” when they are talking about investment properties. These investments can be bought and sold by individuals or large investment firms. In recent years many real estate investment firms have started offering this type of information to investors. These firms basically buy up real estate assets that have already been developed by other firms and turn around and sell them to investors at a profit. The size of these investments can vary greatly depending on the current economy.
An example of what is a pro forma cap table would be the Hilton Head Island condo market. One of these investments would contain all of the condos that are currently listed and available for sale. Most investors are interested in purchasing properties that are under market value. In a typical investment situation this is not possible. Investors must purchase shares at a price that will allow them to earn a return on their investment. startups want to pay the most per share for the most potential income.
Investors can use a Pro Forma to calculate their potential earning potential. Investors need to create a list of all of their current assets. startups divide this list into two separate lists. The first list will include only those properties that are actually valued in the real estate market today. The second list will include only those properties that are under contract and that are worth more than the market price currently.
To create a pro forma cap table an investor will need to determine the current market price per share for each of their properties. They will need to figure out what the investors future expectations are for their investments. This will require them to either research the historical appreciation rates of properties or to utilize a calculator. A combination of these methods should be used to come up with an accurate potential per share rate for each investment. Once this information is available to an investor it makes it much easier for them to determine what the realistic range for future earnings will be.
Once an investor has determined what they are investing in terms of future earnings it is time to determine what they are going to do with all of their profits. Most investors choose to either purchase additional shares or to own additional common shares as an entities. Either way there is a potential benefit from what is known as dilution. Dilution allows investors to increase the ownership stake in a company without having to pay additional capital.
Because all of the profits from the sale of existing common or preferred stock will be added to the shareholders capital when it goes on public in the form of dividends or distributions it is called a pro forma cap table. These numbers are figured by taking the current market price per share and dividing it by the total number of shares outstanding. startups gives the investors monthly or yearly income from their investment.
One of the reasons that investors like to create a pro forma cap table is because it helps them keep their options open. There are times when an investor may not want to sell all of their shares. However, it is also possible to use this document as a time frame to complete an exit strategy. For example, if the market is trending down the day before an expected large sell out event investors can set a buy order so that they will be able to purchase all shares at market value on the morning of the event. This allows them to lock in a profit and exit the market while other sellers become scared and pull their shares off the market.