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A pro forma cap table has been designed with the intention of helping the investor track the evolution of a portfolio’s capital structure. Investors are usually unaware of the evolution of portfolio asset allocation. A pro forma cap table helps investors understand the capital structure and how it is interrelated with other financial instruments such as fixed income securities, stock indices, and bond market funds. They also illustrate the interrelationships between equity, debt, and retained earnings. Pro forma cap tables are designed to provide assistance to the senior management of a company in designing the most optimal capital structure for a company.

An investor uses a pro forma cap table to derive the funding round. This process includes calculating the present value of the purchase price per share of equity, the expected dividends for each stock issued, and the net cash flow of an existing preferred or common stock. A pro forma cap table helps the investor compare the current and long-term balance of capital. Investors can then estimate the potential for incremental capital appreciation. They can also estimate the cost of an additional capital investment, if they choose to issue new shares of common or preferred stock in the company.

An investor uses a pro forma cap table to calculate the discount rate used to compute the investors’ residual income. This rate is calculated by dividing the value of the shares sold by the total number of outstanding shares. The discounted value is then multiplied by the dividend rate on the common or preferred stock that an investor owns. Dividends are included in the discounted amount. The calculation of the discount rate requires the sum of net income and capital gains, if any, divided by the difference between the current fair market value and the future fair market value.

An investor can use the pro forma cap table to calculate the maximum amount of cash that he can invest at any one time. Investors who own more than one percent (5%) of the total issued shares of equity need to register their shares in the DCC or the double-entry book-entry system. DCC accounts for the ownership of securities through banks and other financial institutions. If an investor owns shares in the secondary market, he must disclose that information to the SEC or the Securities and Exchange Commission.

Investors need to provide information on the basis of whether they financed the shares during the term of the option contract. The valuation of an option is also determined by the type of financing used to purchase the stock, the duration of time for which the investor held the option contract, and the premium paid by the investor. To complete the underlying financial statement, investors need to include the difference between the exercise price and the strike price in the valuation of options. Investors can also make changes in the underlying financial statements by selling or buying shares.

One of the advantages of using a pro forma cap table as compared to standard accounting software is the use of negative numbers to show the dilution of ownership. The spreadsheet includes the name of the account holder, the expiration date of the option contract, the stock price at the option exercise price, and the cost of the option multiplied by the outstanding share count. The spreadsheet includes the name of the individual stock, the stock’s outstanding and previous ownership issues, the stock’s current management team, and dividends received. Investors can also enter their purchase and sale of shares during the period of the option contract.

When an investor wants to know how much of the ownership is owned by individuals, he can use the spreadsheet to show the distribution of shares among the named individuals. The spreadsheet also provides the effect of dividends paid and option exercise prices on net asset value per share (NAV). Most investors do not know how much of the ownership is owned by non-family members such as affiliates and traders. To determine this, one must access the spreadsheet with the applicable options. One can add other columns for additional information on partnerships, limited partners, corporation members, and public shareholders.

The spreadsheet can be used for several purposes. It can help new startup s determine the costs involved in going public, and it can show investors the effect of dividends and option exercise prices on net asset value per share (NAV). Investors in start ups can also use the spreadsheet for capital budgeting and funding prospectus. This spreadsheet can also be useful for general business and transactional finance as well as business valuation applications.