The pro forma performance of a company is a type of financial statement that leaves out any of a number of factors the company would prefer not to include. Because pro forma statements don’t adhere to generally accepted accounting principles, there is always the potential that they can be used to mislead investors.

How do you evaluate a pro forma?

The steps are:

1. Calculate the estimated revenue projections for your business, a process called pro forma forecasting.
2. Estimate your total liabilities and costs.
3. To create the first part of your pro forma, you’ll use the revenue projections from Step 1 and the total costs found in Step 2.
4. Estimate the cash flows.

When do you need a pro forma P & L?

Pro Forma P&L. A new business needs to create a profit and loss statement at startup. This statement is created pro forma, meaning that it is projected into the future. 3  Your business will also need a pro forma P&L when applying for funding for any new business project. What information do I need to prepare this statement?

What does a pro forma income statement look like?

Pro forma income statements, also called pro forma profit and loss (pro forma P&L), are projections based on your past income statements. Regular income statements, sometimes called statement of financial performance, are exacting, in that they reflect the exact income figures your company had in past years.

How does a pro forma acquisition look like?

Historical with acquisition pro forma projection This type of pro forma projection looks at the past financial statements of your business, plus the past financial statements of a business you want to buy. Then it merges them to show what your financials would have looked like if you made the acquisition earlier.

Is it bad management to use pro forma earnings?

It’s bad management to produce goods that can’t be sold, and a company’s poor decisions shouldn’t be erased from the financial statements. This isn’t to say companies are always dishonest with pro-forma earnings – pro forma doesn’t mean the numbers are automatically being manipulated.