Pro Forma Financial Statement Template For Underserved Area Expansions

In fact, small startups can use pro forma financial statements to understand their current financial value and make calculated future predictions. Balance SheetsA balance sheet is one of the financial statements of a company that presents the shareholders’ equity, liabilities, and assets of the company at a specific point in time. It is based on the accounting equation that states that the sum of the total liabilities and the owner’s capital equals the total assets of the company. Essentially, a pro forma financial statement can exclude anything a company believes obscures the accuracy of its financial outlook and can be a useful piece of information to help assess a company’s future prospects. When you seek investment, you can present a pro forma financial statement which indicates how you’ll use the investment capital to grow your business sustainably.

  • These are factually supported by the data from the original financial statements.
  • If the accountant is not independent, the report should reflect this.
  • Next, identify any adjustments to your current assets/liabilities that may vary depending on the sales variance that you’ve used in your projection.
  • Some firms exclude unsold inventory of their statements, which, in a way, portrays inefficient management to produce inventory that cannot be sold.

This portion of the pro forma statement will identify the net effect on cash if the proposed business change is implemented. Cash flow differs from NI because, underaccrual accounting, certain revenues and expenses are recognized prior to or after cash changes hands.

Historical With Acquisition

The pro forma financial information should be presented in columns and show the condensed historical amounts, the pro forma adjustments, and the pro forma amounts. GAAP-conforming financial statements must be included with pro forma submissions. A financial forecast may be used in lieu of pro forma financial statements. According to the SEC, this does not take the place of the pro forma balance sheet, but the pro forma income statement may be withheld. The difference is that the financial forecast details the company’s expected results of operations as a single-point estimate or a range. The legal liability of the company may increase upon submitting forecasts instead of pro forma income statements, but the practice may be more relevant for certain businesses.

When it comes to accounting, pro forma statements are financial reports for your business based on hypothetical scenarios. They’re a way for you to test out situations you think may happen in the future. It is better to be cautious and assess the projected pro forma income statement calculations along with the rest of the financial documents to get more accurate and updated projections. You can use a pro forma income statement to review the projected operational business costs against the current fiscal budget. You can use this benchmark data to figure out whether or not you will expect high expenses in the first quarter as opposed to the second quarter of the year. Ultimately, it involves financial projections and assumptions that allow you to make calculated and logical business decisions. For decades, the proforma income statement has been a useful tool for startup founders, investors, and key decision-makers to examine the future financial health of the business.

Next, add up all your operating expenses, as well as any other expenses like income taxes and cash disbursements. Add up your operating expenses as well as any other expenses, including cash disbursements to owners, interest expense, income taxes, etc. We’ll do one month of your bookkeeping and prepare a set of financial statements for you to keep. External factors – Factor in market, competition, and/or regulatory changes that might impact your product’s growth. For instance, GDPR preparedness can impact your timeline on when you would expand to Europe. This will help you figure out the underlying sensitivities (e.g. maybe customer churn is a huge factor that needs preventative measures). Pro forma profit and loss statements can also be used to calculate the financial ratios.

Investment Pro Forma Projection

For this reason, investors must examine not only the pro forma earnings, but also GAAP earnings, and never mistake one for the other. Add back depreciation to capital expenditure, which is arrived at on the cash flow statement. This determines property, plant, and equipment on the balance sheet. Add net income from the income statement to the balance sheet and cash flow statement.

Pro Forma Income Statement

They can look forward or backward, revealing financial information that standard financial statements simply cannot provide. 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. You can use this scenario as a model of what may happen in the future if you buy the other business now. For these purposes, pro forma statements are typically created as a part of a financial forecast in financial accounting. Big corporations who have in-house accountants use pro forma statements for financial modeling different scenarios.

The foundation of a pro forma income statement focuses on various assumptions to make accurate quarterly or annual projections of revenue and expenses. If a company has a one-time expense, it may drastically bring down its net income in that particular year. Hence companies exclude such costs while making the pro forma profit and loss to give investors and analysts a better picture of the company’s financial position. It may be prepared in advance of a transaction to project the future status of the company. For example, if a company is planning to acquire another company, it may prepare a pro forma financial statement to estimate what effect the acquisition would have on its finances.

Types Of Pro Forma Statement

Pro forma, a Latin term that means “for the sake of form” or “as a matter of form”, is a method of calculating financial results using certain projections or presumptions. Start with your cash-on-hand, then add all of the cash receipts like sales, loans and injections of cash, interest income, and others. Set a production schedule that will let you reach your goal, and map it out over the time period you’re covering. In this case, you’ll want to earn an additional $1,500 income every month, for 12 months. Pro forma financials in the United States boomed in the late 1990s when dot-com companies used the method to make losses appear like profits or, at a minimum, to reveal much greater gains than indicated through U.S. Pro forma, Latin for “as a matter of form” or “for the sake of form”, is a method of calculating financial results using certain projections or presumptions.

Pro Forma Income Statement

However, for all regular income statements presented in a filing, there must also be a pro forma statement. Use this pro forma income statement template to create your own. This form may also be used for corporate retail or wholesale companies.

Adjustments To Gaap Or Ifrs

If the accountant is not independent, the report should reflect this. 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.

  • Pro forma income statement, however, gains a different meaning under the scope of public companies.
  • Investors should be cautious when evaluating these types of statements because they present a considerably more favorable picture of the business.
  • Securities and Exchange Commission to be fraudulent and punishable by law.
  • They can look forward or backward, revealing financial information that standard financial statements simply cannot provide.
  • The auditor is not responsible if the company made material modifications to the finance information.
  • This helps you realize the range of outcomes your startup can realistically expect in terms of your income.

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What’s The Difference Between Pro Forma And Gaap Financials?

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  • If your company has a high debt-to-equity ratio, it will show on the balance sheet.
  • Yes, that subheader is a mouthful, but there’s a reason for that – it encompasses an awful lot.
  • But as mentioned earlier, a pro forma income statement projects the future financial health rather than the past.
  • …plan for the future, by considering best, worst, and most likely case scenarios in detail.
  • Pro forma EPS are calculated in the pro forma income statement, but the figure is also used in the pro forma balance sheet and the pro forma cash flow statement, when necessary.

These are often intended to be preliminary or illustrative financials that do not follow standard accounting practices. Basically, companies use their own discretion in calculating pro forma earnings, including or excluding items depending on what they feel accurately reflects the company’s true performance. As pro forma forecasts are hypothetical in nature, they can deviate from actual results, sometimes significantly. In creating your pro forma documents, it is advisable to create multiple sets with different scenarios, especially when their purpose is to help make decisions.

If interim period balance sheets were submitted, the company should pick up from where they left off. If it is an annual period, the document should also align with the company’s filed GAAP-approved financial statements. 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.

Understanding Pro Forma

Since there are no set rules while making such a pro forma, companies tend to manipulate the financial earnings. Companies can exclude anything it believes that conceals the true financial performance. Free cash flow represents the cash a company can generate after accounting for capital expenditures needed to maintain or maximize its asset base. Because companies’ definitions of pro forma will vary along with their internal methods for forecasting and making assumptions, you must be careful when comparing pro forma figures between different companies. If you are not aware of how the companies define their pro forma figures, you may be inadvertently comparing apples to oranges. Pro forma financials may not be GAAP compliant but can be issued to the public to highlight certain items for potential investors.

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First, you should transfer the change in retained earnings from your pro forma statement of income across to the balance sheet. In this case, think of pro forma statements like dipping your toe in the water before diving into a pool. If the water feels too cold – i.e., the pro forma projections aren’t favorable – it’s probably not a great idea to take a dip. But if the water is to your liking, then you might benefit from a nice swim. It may be tempting to think of a pro forma statement as the same as a business budget.