Pro Forma Financial Statements with Templates and Examples Bench Accounting

Management may believe that the financial results it has reported under either the GAAP or IFRS accounting frameworks are inaccurate, or do not reveal a complete picture of the results of their business (usually because of the enforced reporting of a one-time event). If so, they may issue pro forma financial statements that include the corrections they believe are necessary to provide a better view of the business. The Securities and Exchange Commission takes a dim view of this kind of adjusted reporting, and has issued regulations about it in their Regulation G. Like a pro forma income statement, a pro forma balance sheet would be created by building a balance sheet for a given date based on projected values. For example, create a pro forma balance sheet for 12 months in the future and populate the fields with projected asset values, liabilities, and equity in a year.

Be advised that issuing pro forma financial statements to the public can be problematic, especially since the pro forma statements and the GAAP statements can vary so widely. Investors should be cautious when evaluating these types of statements because they present a considerably more favorable picture of the business. For the effects of the business combination, only show the current and immediately preceding periods. Using pro forma templates can save you valuable time when creating your own pro forma income statements.

Pro forma financial statement definition

Pro forma statements don’t need to meet the strictest accounting standards, but must be clearly marked as “pro forma” and can’t be used for things like filing taxes. Using pro forma statements that aren’t marked as such to misrepresent your business to investors, the IRS, or financial institutions can be penalized by the Securities and Exchange Commission). According to Russell’s projections, he reaches the highest earnings when he hires a full-time administrative assistant.

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 which financial statement is the most important would have looked like if you made a business combination (or merger) earlier. You can use this scenario as a model of what may happen in the future if you buy the other business and restructure now.

Creating a pro forma cash flow statement

Small business owners draft pro forma financial statements to quantify the impact of potential business decisions, such as taking out a loan to grow your business. Pro forma financial statements give you and your team something to consider before signing on the dotted line. The Securities and Exchange Commission (SEC) consistently updates its stringent rules on preparing pro forma statements for the public.

3310.4Alternative measures of performance or liquidity and the effect of pro forma adjustments thereon, provided the requirements of S-K 10(e) are met. 3230.3Pro forma adjustments should be computed assuming the transaction occurred at the beginning of the fiscal year presented and carried forward through any interim period presented. 3220.2Pro forma adjustments should be computed assuming the transaction was consummated on the date of the latest balance sheet included in the filing.

To create a pro forma statement of income:

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For example, if an energy company is planning to build a new power plant, investors may wonder how that project will affect the company’s profits. For example, the company might merge with or purchase another business, and the outcome could affect both cash flow and profits. Alternatively, the organization might need to make a major equipment purchase, and it’s important to know the financial impact of that transaction. It’s an all-in-one solution that helps effectively capture leads, look at future sales and financial ratios, and manage contacts. The monday.com pro forma template is all about helping shake the habit of reactive financial management. With the help of our easy-to-create automations and custom rules, proactively setting up all sorts of hypothetical scenarios will run all day, every day.

How to Create A Pro Forma Income Statement

In law, pro forma court rulings are intended merely to facilitate the legal process (indeed to move matters along). Pro forma is Latin for “as a matter of” or “for the sake of form.” It is used primarily in reference to the presentation of information in a formal way, assuming or forecasting pieces of information that may be unavailable. 3240.3Pro forma adjustments should be referenced to footnotes which clearly explain the assumptions involved. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. EY is a global leader in assurance, consulting, strategy and transactions, and tax services.

3240.1Financial information should be presented in columnar form, with separate columns presenting historical results, pro forma adjustments, and pro forma results. In limited cases, (where there are only a few easily understood adjustments) a narrative description of the effects of the transaction may suffice. You can address this fact simply with a final paragraph in the compilation reports, and the author may elect to include the reason for the lack of independence. Finally, in each page of the pro forma information, there must be a reference to the compilation report.

What Is Pro Forma?

Still, pro forma financials are not regulated to the same extent as historical financial statements. A full-year pro forma is a projection of a company’s year-to-date results, to which are added expected results for the remainder of the year, to arrive at a set of full-year pro forma financial statements. This approach is useful for projecting expected results both internally to management, and externally to investors and creditors. Companies are generally prohibited from creating misleading or fraudulent pro forma financial statements. Still, there may be some gray areas, so use caution when relying on future projections.