What Are Pro Forma Financial Statements? Insights, Examples, and How to Create Them

Pro Forma Cash Flow Statements may not present an accurate report of the company’s financials because it may exclude information that can be material and mislead investors and stakeholders. The company must always consider the conservatism theory for more accurate projections, and not mislead any investors or lenders. The company may enter into capital investments if it projects excess cash over its future business expenditures. By evaluating all earnings and expenses, the company may determine what could be the implication of future decisions for the business. We take monthly bookkeeping off your plate and deliver you your financial statements by the 15th or 20th of each month.

  • Pro forma cash flow statements are essential tools to help maximize your financial opportunities, plan and prepare for risks, and understand the financial health of your business.
  • And while pro formas can be enormously helpful in looking at different financial models based on various assumptions, they’re still – you guessed it – hypothetical.
  • If interim period balance sheets were submitted, the company should pick up from where they left off.
  • Sally uses her sales estimate to estimate the dollar amount of inventory at the end of 2021.
  • If you’re searching for one tailored to your industry and spanning 5 years, we have 100+ different industry templates available for selection.

It then adds your projected cash flow outcomes for the remainder of the year. This allows you to showcase to partners or investors the potential of the business finances by the end of the fiscal year. Likewise, pro forma statements make it easier to anticipate changes that could affect the business — for example, if the tax liability went up due to entering a higher tax rate. They have multiple uses for multiple scenarios, ranging from sales growth projections and risk analysis to more intricate M&A or investment purposes. Unfortunately, most organizations don’t have a fleet of battle-tested CPAs to fully leverage pro formas, especially startups and small businesses. Therefore, we again recommend checking out our Ultimate Guide to Pro Forma Financial Statements, where you’ll find even deeper insights and best practices.

What’s the Difference Between Pro Forma and GAAP Financials?

Some of these plant properties aren’t relevant to us right now, but we will come back and use this hypothetical plant as an example in future lessons. We forecast that our capital expenditures will increase in line with reporting partnership tax basis our sales, at a rate of 20% per year. We plan to invest heavily in research and development, as well as new product launches. We forecast that our sales will increase by 20% in each year of the forecast period.

  • The main benefit of pro forma statements is it gives you an informed peek into your financial future.
  • However, we’re lobbing another caveat your way – take our walk-throughs with a grain of salt since they’re only a glimpse into the basic pro forma process.
  • But in this case, the management team considered different scenarios and compared them to each other.
  • The monday.com pro forma template is all about helping shake the habit of reactive financial management.

The pro forma financial statements, including pro forma earnings per share calculated, must be submitted. Traditionally, financial statement analysis is used to better understand a company’s performance over a specified period. While this provides insight into a company’s historical health, creating pro forma financial statements focuses on its future. For this reason, these reports can be leveraged in several ways, including analyzing risk, projecting investments, and showing expected results before the end of a reporting period.

This form may also be used for corporate retail or wholesale companies. 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.

Creating a pro forma cash flow statement

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. 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. In this way, your management team (or C-suite) has all the information they need to make informed decisions. If you enable them, they have the best and worst-case scenarios that review the fiscal impact of their decisions and possible ways to mitigate risk.

How to Finish Your Business Plan Template in 1 Day!

We have included a template for the pro forma financial statements where you can input values and the statements will automatically update. Additionally, you can add new rows and type new items to the financial statements as per your requirements. As such, when providing the GAAP financial statements, the pro forma statements are also presented as a supplement report to provide additional information on the company’s overall financial health.

What is Pro Forma Cash Flow?

Pro forma financial statements incorporate hypothetical numbers or estimates. They are built into the data to give a picture of a company’s profits if certain nonrecurring items are excluded. Here’s a historical example of a pro forma income statement, courtesy of Tesla Inc.’s (TSLA) unaudited pro forma condensed and consolidated income statement for the year ended Dec. 31, 2016. Accountants prepare financial statements in the pro forma method ahead of a proposed transaction such as an acquisition, merger, a change in a company’s capital structure, or new capital investment. The sample pro forma statements below may look different from the statements you create, depending on what your template looks like.

Gauge the Impact of Financial Decisions

These are models that forecast the expected result of the proposed transaction. 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. A budget is based on certain assumptions about future expenses and revenues.

We expect our expenses to increase at a slower rate than our sales, due to our economies of scale. We anticipate that our expenses will increase by 15% in Year 1, 10% in Year 2, and 5% in Year 3. As such, there aren’t really any standardized rule sets governing their creation. This is because predictions can be both conservative in their estimates or bloated. This projects revenues and expenses to show the anticipated net profit or loss.

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