Pro Forma Financial Statements with Templates and Examples

pro forma statements example

Optimistic pro forma financials help managers prepare for increases in sales and profits. They may need to increase purchases of inventory, hire additional staff, lease more warehouse space and secure additional lending to finance the rise in current assets. One tool A CPAs Perspective: Why You Should or Shouldnt Work with a Startup that lenders use to evaluate the performance and financial health of a company is the calculation of financial ratios for various scenarios of revenues and expenses. Lenders use ratios to gauge a company’s liquidity, profit performance and debt-to-equity leverage.

For the effects of the business combination, only show the current and immediately preceding periods. These reports provide key stakeholders, investors, and creditors the foresight needed to make decisions and strategically plan. Managers and individual contributors can also benefit from creating pro forma statements, enabling them to understand different factors impacting business units. Once you’ve created your pro forma income statements, and cast your eyes forward to the future of your business, you can start planning how you’ll spend your money. To illustrate the process of creating pro forma financial statements, meet Sally, the owner of Centerfield Sporting Goods.

Pro Forma Adjustments

All that’s left is to fill in the blanks to make the template unique to the situation. Therefore, to paraphrase Merriam-Webster, pro formas involve or are based on a suggested idea or theory. Put another way, they use information that can vary substantially from actual data. So while pro formas are fantastic for looking at events from different angles, never take them as gospel, only well-informed conjecture.

  • Simply import financials and then use the dashboard on the Pro Forma Template to choose various custom scenarios.
  • Litigation is another area of difference between GAAP and pro forma financials.
  • The term is used in legal and business fields to refer to various types of documents that are generated as a matter of course.
  • Management will start with the standard income statement and add the estimated $5M sales projection along with the corresponding expenses needed to produce and ship these goods to the distributor.

The objective is to examine various alternatives and determine the best course for the business. Company management should look at their pro forma financials to make sure their ratios comply with lenders’ guidelines. After this, use your costs and revenue projections to find out what your future net income might be. Keep in mind, it is illegal to use pro forma financials to mislead investors. Under standard Generally Accepted Accounting Principles, these nonrecurring restructuring costs would get posted on the company’s income statement, substantially reducing profits or maybe even showing losses. The term pro forma is Latin and can be translated to mean “for the sake of form.” Companies use pro formas to evaluate what-if scenarios and how they could impact their business.

Adjustments for Nonrecurring Items

Lenders and investors will require such statements to structure or confirm compliance with debt covenants such as debt service reserve coverage and debt to equity ratios. Similarly, when a new corporation is envisioned, its founders will prepare pro forma financial statements for the information of prospective investors. Also, banks will request pro forma statements in lieu of tax returns for a start up business in order to verify cash flow before issuing a loan or line of credit. Statements of cash flow, or cash flow statements, measure the sources of a company’s cash and how it uses that cash over the stated period. Pro forma statements of cash flow estimate how much cash inflow and outflow is expected in one or more future periods.

Now that we understand what a pro forma is and why they’re so uniquely insightful, let’s zoom in on how companies can use them. We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team. Businesses create annual budgets that fall in line with a company’s profitability and production goals. We accept payments via credit card, wire transfer, Western Union, and (when available) bank loan. Some candidates may qualify for scholarships or financial aid, which will be credited against the Program Fee once eligibility is determined.

Volume and revenue assumptions

They assist in financial planning, decision-making, and evaluating the potential impact of different business strategies or scenarios. The purpose of a pro forma statement is to provide a forward-looking projection of a company’s financial performance based on certain assumptions or hypothetical scenarios. It helps in planning, decision-making, and assessing the potential impact of various business strategies. According to the SEC, for public companies, a pro forma balance sheet should have the same dates, plus one year from the last submitted balance sheet.

Going back to our Wal-Mart example, let’s assume the company can’t support that many purchase orders and has to draw a line of credit in order to fund it. Now the projected sale has not only put more income on the bottom line, it has also put more debt on the balance sheet. Start with one of Excel’s pre-built templates and enter all hypothetical numbers. Since we used a sales-driven projection, other variables like operating expenses, depreciation & amortization, and interest expense were unaffected by our pro forma adjustments.

Q: Does Google Sheets have a pro forma template?

Several third-party sites offer links to pre-built pro forma templates they’ve designed. This article will explain what a pro forma template is, share our custom pro forma template for Excel, and how can be used to boost sales forecasting abilities. There are other stable variables that aren’t influenced by sales on the income statement, including operating expenses, depreciation and amortization, and interest expense.

  • Therefore, whatever prompts the need for them, you must adhere to any mandatory guidelines involved.
  • As a slight aside, for more in-depth insights on pro forma adjustments as well as some handy best practices and examples, we urge you to look at our Ultimate Guide to Pro Forma Statements.
  • In accounting, pro forma statements are a way to test out various business situations that might happen in the future.
  • The pro forma financial statements, including pro forma earnings per share calculated, must be submitted.
  • A pro forma invoice requires only enough information to allow customs officials to determine the duties needed from a general examination of the included goods.

Often requested by banks, they may also be prepared as a part of the annual budgeting or forecast and estimate where cash shortages may occur in order to obtain additional funding. In the case of estimated cash overages, the company can produce a plan for investment. Arguably, the statement of cash flow is the most important of the pro forma documents. If the pro forma balance sheet and income statements lead to a statement of cash flow that shows inadequate funds for what management has planned, the other documents will be invalid and may need to be reworked. A pro forma financial statement offers projections of what management expects to happen under a particular set of circumstances and assumptions. Standard financial statements are based on a company’s historical performance.