Product or Service Profitability
24-Month Pro Forma
| Previous Fiscal Year (2021) | 24-Month Projections | |
| Sales | $29.88 billion | $45 billion |
| Cost of goods sold | $29.86 billion | $44.5 billion |
| Gross profit | $27 million | $500 million |
| Selling expenses | $1,098 million | $2 million |
| Administrative expenses | $11,817 million | $22 million |
| Total operating expense | $30,941milion | $24 million |
| Income from operations | $(1,059) million | $476 million |
| Other income | $293 million | $450 million |
| Income before tax and interest | $(2,277) million | $(4 million) |
| Other expense (interest) | $(1,800) million | $(2 million) |
| Income before income tax | $(2,548) million | $(4 million) |
| Income tax expense | $ (500) million | $(1 million) |
| Net income | $(1,993) million | $(2 million) |
Explanation of Assumptions
American Airlines Group’s financial performance over the next two years is expected to be gradual (Yahoo, 2022). The company is not likely to make significant profits. Instead, it is expected to reduce its losses incurred in 2021. The company’s new product, low-cost flights, is expected to enable the carrier to remain afloat as it recovers from the pandemic’s effects. Since business has not entirely healed, huge profits are not likely. However, the airline will have lower administrative costs because of the reduction in employees. The salaries will reduce significantly. These monies will motivate the remaining staff members and ensure that the expenses and loan obligations are serviced as expected. Income from other business activities is expected to remain stagnant because the volume of clients is significantly low. The cost of goods sold will remain high over the two years because the company will still be expected to maintain current assets used for service delivery.
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Reference
Yahoo. (2022). American Airlines Group Inc. (AAL). Retrieved from Yahoo Finance: https://finance.yahoo.com/quote/AAL/profile?p=AAL
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Question 
Creativity and diversity can lead to outcomes that maximize profit and enhance social well-being. Business leaders use measurable factors to help determine design and development decisions, “go” or “no-go” milestones, financial models, and many “what if” scenarios. The new product or service is considered part of a system in this process.
Product or Service Profitability
Scenario
You rocked your BMC and received a great response from the experienced project manager (PM). As you read the feedback, you realize that it’s now time to develop the financial component. In the comments, the PM also stated that no matter how good an idea is, to senior management, it’s a “no-go” if the new product or service does not produce sales.
In preparation for your funding pitch, which you will submit as your course project in Module Seven, the PM also warns that funding pitches are quick and decisive. Including too much information could overwhelm senior management, cause more questions, and erode the purpose of the funding pitch.
Prompt
The PM’s directive at this point is for you to develop a 24-month pro forma that demonstrates the potential profitability of the new product or service in an income statement. You will use the Module Six Assignment Template linked in the Guidelines for Submission section to complete this assignment.
You may use the current company’s income statement to project what can be added to the company’s profitability. This can be found in the company’s 10-K. Look to other companies in the marketplace with products or services similar to your proposal as a basis for your projections. Additionally, you may use the company’s current year numbers and critical assumptions based on your market analysis to project into the future. Remember, these numbers are purely speculative.
In the template, you will specifically address the following:
Previous fiscal year: Identify historical information for the last fiscal year.
24-month projections: Speculate projections for 24 months.
Explanation of assumptions: Explain how you were able to speculate appropriate assumptions.
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