proforma example

After almost a decade of experience in public accounting, he created MyAccountingCourse.com to help people learn accounting & finance, pass the CPA exam, and start their career. If you don’t know how each of the companies defines its pro forma figures, you may be comparing apples to oranges. Using pro forma results to grossly misconstrue GAAP-based results and mislead investors is deemed by the U.S. Securities and Exchange Commission (SEC) to be fraudulent and punishable by law.

proforma example

These are often intended to be preliminary or illustrative financials that do not follow standard accounting practices. Companies use their own discretion in calculating pro forma earnings, including or excluding items depending proforma example on what they feel reflects the company’s true performance or future performance. Remember, what distinguishes these pro forma statements from your standard financials are the adjustments, not the calculations or even the format.

Pro forma financial statements: How to use them to make smarter business decisions

Pro forma financial statements often play a significant role in public reporting, especially when dealing with the Securities and Exchange Commission (SEC). Companies may use pro forma statements to present their financial results, adjusted for specific events such as acquisitions or divestitures. This provides stakeholders with a clearer understanding of the company’s financial position and helps them make informed decisions.

However, financial projections can be built from nothing for a startup company, using specific industry-specific assumptions. By contrast, pro forma financial statements are based on current financial statements and change based on events and assumptions. In other words, pro forma financial statements start from real financial data. Pro forma financial statements provide a hypothetical look at how a company would perform based on a set of credible assumptions about one or more transactions it is contemplating.

Learning from Pro Forma Mistakes

In other words, the different types of pro forma statements are basically the same financials you’re already accustomed to, just using hypothetical data for future periods. So, as you’ll see once we discuss how to create pro formas in just a bit, they don’t require you to recreate the financial reporting wheel, at least in terms of format. The information gathered from each of these statements can help a company make business decisions, secure funding, and drive strategic planning. In summary, pro forma financial statements serve as a valuable tool for forecasting, preparing hypothetical scenarios, and projecting future performance to ensure a company’s long-term financial success.

proforma example

The statements are presented to the company’s management to help it make a decision on a proposed action based on its potential benefits and costs. For example, a company will report its actual sales and expenses for the quarter that just passed and, in the same chart, will list its projections of these numbers for the current quarter. Several third-party sites offer links to pre-built pro forma templates they’ve designed.

Pro Forma Financial Accounting

For instance, management usually talks about the growth of the company in the management discussion and analysis section of the annual report. If their growth projections are based on landing a new client or project, they might include an estimated income statement to show the effects of the new project on the bottom line. A pro forma income statement uses the pro forma calculation method, mainly to draw the attention of potential investors to specific numbers when a company issues its quarterly earnings announcement.

proforma example

We accept payments via credit card, wire transfer, Western Union, and (when available) bank loan. Some candidates may qualify for scholarships or financial aid, which will be credited against the Program Fee once eligibility is determined. Operating on a subscription pricing model for more than 20 years has given us the opportunity to face and overcome the practical pain points of subscription businesses. In order to forecast our business on a go-forward basis, we’ll use our Assumptions tab to project what our business might do throughout the year. For the time being, we just need to make sure we cover the basics of where to track revenue and where to track costs. This isn’t always possible, especially in Year 1, but it’s always a good place to start to figure out whether we’re heading in the right direction with a new business.