Pro Forma Financial Statements with Templates and Examples

proforma example

Not all these things should be left off, but the decisions of what is left off should be well thought out and explained to potential investors, so they have a clear indication of what they are viewing. Knowing how the pro forma documents are compiled and what is left out is also critical when comparing different pro forma statements. Understanding this methodology and the decisions behind it will enable accurate comparisons and information to investors. In a sense, pro forma financial statements allow management to A/B test different strategies without any real-world impact.

Analyzing Pro Forma Statements

Join our free and exclusive Slack community for professionals just like you. Join our exclusive, free Slack community for strategic finance professionals like you. Connect and map data from your tech stack, including your ERP, CRM, HRIS, business intelligence, and more. In other words, if you’re trying to attract investment capital or have an M&A transaction on your mind, you’ll want to use something more detailed and tailored for the purpose. Fortunately, you already happen to know a team of experts that can do just that for you.

What is Pro Forma Reporting?

These statements often focus on estimates and projections, rather than actual financial data, which can result in an unclear picture of a company’s performance. Furthermore, pro forma statements might not take into account the full range of worst-case scenarios, increasing the risk inherent in making decisions based on these projections. A pro forma balance sheet is a comparison of a business’ assets and liabilities. The pro forma part of the balance sheet is a projection that looks ahead, assuming certain things will occur. Pro forma balance sheets are difficult to compile, but banks generally ask for them and they are important for showing your potential financial picture. They can show the projection of what money will be tied up in receivables, equipment, and inventory.

proforma example

What is the purpose of pro forma financial statements in assessing a company’s financial health?

A pro forma invoice is a preliminary bill of sale sent to a buyer in advance of a shipment or delivery of goods. The invoice will typically describe the purchased items and other important information, such as the shipping weight and transport charges. GAAP enforces strict guidelines when companies report earnings, while pro forma figures are better thought of as hypothetical earnings. As pro forma forecasts are hypothetical in nature, they can deviate from actual results, sometimes significantly. For example, a bakery customer might agree to the price of a cake on a pro forma invoice, and the baker will deliver the cake once it is ready. The customer will then pay for it when they receive the final, formal invoice.

Calculate pro forma gross profit

They can be used to plan the future by evaluating upcoming cash requirements, credit terms on new debt obligations, and the logistics of entering into new contracts. Despite their limitations, pro forma financial statements have a place in financial planning and forecasting. However, recognizing their limitations and staying cautious in the decision-making process is key to fully leverage proforma example their value while avoiding potential pitfalls. They create pro forma statements combining their own historical financial information with that of the acquisition target. This enables them to better understand the combined entity’s future financial performance and potential synergetic effects. Business owners evaluate the financial accounting impact of adding a product line.

Your cash flow statement takes net income and adjusts it for non-cash expenses. From there, you can reference changes in the balance sheet to find cash usage and receipt patterns. A pro forma template can give you a clear idea of your company’s financial health and a possible future outlook. It can give you a sense of whether your business is on track to meet its financial goals and help you identify potential problems that may arise down the road. To steer your business in as safe a manner as possible, then, your estimates should be conservative. It’s also best practice to audit the data before plugging it into your pro forma statements.

  • However, the information is affected by outstanding estimated days of sales, or the average number of days that payment has not been made by the customers.
  • The Ascent, a Motley Fool service, does not cover all offers on the market.
  • They are created using assumptions about future values and conditions, which serve to forecast financial performance over a period that has not yet occurred.
  • The Securities and Exchange Commission (SEC) is wary of pro forma statements because they are very much based on assumptions, not generally accepted accounting principles.
  • It’s an all-in-one solution that helps effectively capture leads, look at future sales and financial ratios, and manage contacts.
  • Creating a pro forma statement in Excel from scratch is pretty straightforward.

Q: What are the 3 benefits of creating a pro forma?

There are many different periods that could be covered, as well as the different purposes for the pro forma financial statements. When your financial statements are put into pro forma financial statements, you adjust material charges, credits, and tax effects to the transactions. In other words, you get an idea of what your financial results would have been if the event had already occurred. These are factually supported by the data from the original financial statements.

proforma example

Specific documentation is required before goods can pass through customs into the U.S. Pro forma invoices aren’t legally required but they’re generally a good idea because they can prevent disputes at the time of delivery. It’s used to show the company’s ability to operate in the long term and short term based on existing cash inflows.

  • Forecasts made from these financial statements may or may not contain an even higher degree of deviation from the actual state of the company.
  • They help businesses budget, forecast, and plan for their financial future.
  • We accept payments via credit card, wire transfer, Western Union, and (when available) bank loan.
  • You can also use the pro forma template to estimate the expected revenue from this new location.
  • However, we’re lobbing another caveat your way – take our walk-throughs with a grain of salt since they’re only a glimpse into the basic pro forma process.
  • This provides stakeholders with a clearer understanding of the company’s financial position and helps them make informed decisions.

Pro Forma Template Output Examples

proforma example

One of the most important use cases of pro forma statements is to assess the viability of a merger. Another, critical use case of pro forma financial statements is risk analysis. This is known as sensitivity analysis, and basically shows how risky the company’s current position is. This is always important to do, but especially now in the midst of economic uncertainty. Since they can be built using the same template as your usual financial statements, creating pro forma statements is easy.

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