Pro forma financial statements are projections of future expenses and revenues, based on a company’s past experience and future plans. Investors and creditors often use pro forma statements to help understand the planned actions of management. Comparison of pro forma and actual financial statements can help them to appraise whether these planned actions are in their best interest. https://www.bookstime.com/articles/intuit Most businesses have limited resources, and pro forma reports can help you make better decisions with what you have. Every small business should create a budget, and the budgeted financial results are pro forma statements. An owner may create pro forma reports to assess the potential profitability of a product, or to determine if a business expansion makes financial sense.
This also informs potential investors of which businesses to invest in for future investment opportunities. We’re going to zip through each of the tabs in the income statement to explain what they mean and how they relate to each other. If you haven’t downloaded our template that’s OK — this same walkthrough works for just about any pro forma income statement. proforma example Below is an example of pro forma balance sheet of Airbnb, Inc, for the financial year ended September 30, 2020. The pro forma column in the consolidated balance sheet reflected a planned capital restructuring following its initial public offering. A pro-forma forecast, similar to any sort of pro-forma report, is not required to abide by GAAP.
Strategic Use of Pro Forma Projections
In that case, you can use a financing pro forma projection to make your case. It takes into account an injection of cash from an outside source—plus any interest payments you may need to make—and shows how it will affect your business’s financial position. Since pro forma statements deal with potential outcomes, they’re not considered GAAP compliant. This is because GAAP compliant reports must be based on historical information. Most pro forma invoices provide the buyer with a product description, selling price, and an estimate of any commissions or fees.
This is done by taking the difference between revenue, or sales and expenses, or the costs involved in doing business. On a pro forma income statement, revenue is calculated based on events that could increase or decrease sales. When creating your pro forma income statement, it’s important to use realistic assumptions to estimate your revenue projections. There are several ways that a pro forma financial statement can be used incorrectly. These financial statements are based on what someone thinks will happen in the future. This is not an indication that what appears on pro forma statements will actually happen.