In financial accounting, pro forma refers to a report of the company’s earnings that excludes unusual or nonrecurring transactions. Excluded expenses could include declining investment values, restructuring costs, and adjustments made on the company’s balance sheet that fix accounting errors from prior years.

What is the benefit of a pro forma income statement?

The pro forma income statement provides forecasts of potential sales revenue, costs of goods sold, and expenses. Pro forma income statements also provide hypothetical net profits from business operations using the same data as the income forecast.

Why would you prepare both a best case and worst case pro forma cash flow statement?

A cash flow statement shows how much cash comes in and out of a business. Creating both a best-case scenario and worst-case scenario is important because you can prepare for both. You can use the best-case scenario to your advantage or already be prepared for the worst-case.

How to prepare a pro forma income statement?

To prepare your pro forma income statement, you’ll need to determine your estimated revenue projections. Then estimate all of your costs and liabilities, such as loans, rent, payroll, taxes, etc.

What do Lenders look for in a pro forma statement?

In the business lending world, lenders will look at a company’s pro forma balance sheet to determine the debt-to-equity ratio for additional lending. If it’s too high, borrowing may not be available. To prepare a pro forma statement, you can use a financial statement template or pro forma sample spreadsheets, like these from Smartsheet.

Why do you need a pro forma balance sheet?

When creating a pro forma balance sheet, you might consider if any assets will be purchased, any investments will be sold or any debt will be paid. In the business lending world, lenders will look at a company’s pro forma balance sheet to determine the debt-to-equity ratio for additional lending. If it’s too high, borrowing may not be available.

Why do you need a pro forma statement of cash flow?

A pro forma statement of cash flow can be helpful in determining when there might be a shortage of cash, which could help determine whether cutting expenditures or taking on a loan could help. It could also help determine if a surplus of cash is projected.