pro forma income statement example

Pro forma financial statements are a common type of forecast that can be useful in these situations. They include the pro forma cash flow statement, the pro forma income statement, and the pro forma balance sheet. A university press most often uses proforma statements in connection with its annual operating budget and long-term financial planning process. Budgets and multi-year financial plans usually contain pro forma income statements and balance sheets to summarize financial performance for given time periods and financial conditions for given dates.

  • She mentions that following GAAP is not required in preparing pro-forma statements.
  • For example, you might create pro forma financial statements to reflect the outcomes of three investment scenarios for your business.
  • Susan tells Jack she needs him to prepare pro-forma financial statements to determine the profitability of the purchase.
  • Creditors might also get insecure due to higher financial leverage situation of a company as this might violate existing debt covenants that are in place.
  • An equity research analyst is planning to prepare a Pro forma Income statement for the company’s next year.
  • In accounting, pro forma statements are a way to test out various business situations that might happen in the future.
  • Sometimes we encounter costs that we can classify under both categories.

An organization is also seeking funding and needs to indicate investors however the company’s results can modification if they invest a definite quantity of cash within the business. This approach could end in many completely different sets of professional pro forma money statements, every designed for a unique investment quantity. This can be a projection of a company’s year-to-date results, to that are additional expected results for the rest of the year, to attain a group of full-year professional pro forma money statements.

What is Pro Forma Income Statement?

Management uses these reports regularly in the course of business and only occasionally issues them to outside investors and creditors. Creditors, in particular, would be concerned about this because additional debt might violate preexisting debt covenants. Meanwhile, investors might not care because the growth in income outweighs the increase in debt.

pro forma income statement example

When it comes time to create a pro forma statement, you have reliable numbers and reports to get started. Creating a pro forma statement in Excel from scratch is pretty straightforward. First, make a typical financial statement, such as a cash flow statement. Then, choose one column to amend with hypothetical figures to match various scenarios. A regular income statement, also known as a historical income statement, presents the revenues, expenses, gains, and losses incurred by a company during a specific period. It provides a retrospective view of the company’s financial performance and reflects the results based on past transactions and events.

What is a Pro Forma Income Statement?

Companies’ definitions of pro forma vary along with their internal methods for forecasting and making assumptions. Using pro forma results to grossly misconstrue GAAP-based results and mislead investors is deemed by the U.S. Securities and Exchange Commission (SEC) to be fraudulent and punishable by law. Pro forma financials in the United States boomed in the late 1990s when dot-com companies used the method to make losses appear like profits or, at a minimum, to reveal much greater gains than indicated through U.S.

Investors and creditors use it to analyze the financial position and health of a company. Management uses it to make informed decisions about events or transactions. And lastly, analysts use pro forma statements to forecast future performance and trends. This is one of the most common pro forma financial statements prepared by management. It assists management, investor and creditors in analyzing the impact certain economic conditions, business decisions, deals, merger or acquisitions and other events have on the profitability of a company. Pro-forma financial statements are created for balance sheets, income statements, and statement of cash flows.

Types of Pro Forma Financial Statements

For this reason, these reports can be leveraged in several ways, including analyzing risk, projecting investments, and showing expected results before the end of a reporting period. The pro forma income statement projects a company’s financial performance for the future. It uses estimates and Navigating Law Firm Bookkeeping: Exploring Industry-Specific Insights predictions based on expected events or circumstances. Usually, companies use it to budget for the future or forecast their performance for future periods. It differs from the regular income statement as the pro forma focuses on the future, while the former includes historical figures.

For example, they can determine whether expenses can be expected to run higher in the first quarter of the year than in the second. They can also determine whether sales can be expected to run above average in, let’s say, June. They can determine whether your marketing campaigns need an extra boost during the fall months. All in all, they provide you with invaluable information—the sort of information you need to make the right choices for your business. Use the templates found here to create your own cash flow statement forecast. Change the dates and time periods to reflect the projection you need to create.