Pro Forma

A pro forma is a document that estimates the financial statements of a company for a future period based on historical data and current information. It is used to forecast the company’s future performance and to help investors and creditors make informed decisions.

Key components of a pro forma:

• Balance sheet: Estimates the company’s assets, liabilities, and equity at a future date.
• Income statement: Estimates the company’s revenue, cost of goods sold, and net income for a future period.
• Cash flow statement: Estimates the company’s cash inflows and outflows from operating, investing, and financing activities for a future period.

Uses of pro formas:

• Financial planning: To forecast future financial performance and to develop financial goals.
• Investment and lending decisions: To help investors and lenders make informed decisions about a company.
• Budgeting: To create a budget for a company based on forecasted financial performance.
• Operational planning: To guide operational planning and decision-making.

Example:

A company’s pro forma for the next fiscal year might estimate its:

• Revenue: $10 million
• Cost of goods sold: $6 million
• Net income: $2 million
• Assets: $20 million
• Liabilities: $10 million
• Equity: $10 million

Note: Pro formas are not necessarily accurate and should not be relied upon as definitive financial statements. They are estimates based on available information and should be used for planning purposes only.