Casual Define Pro Forma Income Statement

What Are Pro-forma Earnings.

Define pro forma income statement. A firm might construct a pro forma income statement based on projected revenues and costs for the following year. Pro forma adjustments exclude overhead costs not applicable to the new business entity such as division and head office expenses. In accounting pro-forma financial statements are hypothetical financial reports that show either forecasts of or alterations to actual financial statements.

As we said a pro forma statement is a look at a what-if scenario. A Pro Forma Statement Is an Important Tool for Planning Future Operations For my purposes here a pro forma income statement is similar to an historical income statement except it projects the future rather than tracks the past. They are useful tools that business owners investors creditors or decision-makers can use to examine different iterations of future events based on certain financial assumptions.

Likewise a firm may wish to develop a set of pro forma statements to determine the effect of a projected stock buyback. Pro forma income statements are projections of what a companys income statement will look like under different circumstances. Pro-forma earnings describe a financial statement that has hypothetical amounts or estimates built into the data to give a picture of a companys profits if certain.

They can look forward or backward revealing financial information that standard financial statements simply cannot provide. A pro forma income statement combines the historical income statement of the acquiring company and a pro forma income statement of the business to be acquired for the previous five years if. Pro forma is actually a Latin term meaning for form or today we might say for the sake of form as a matter of form.

When it comes to accounting pro forma statements are financial reports for your business based on hypothetical scenarios. Theyre a way for you to test out situations you think may happen in the future. They are used to help make decisions and also to give investors an idea of the financial status of a company under different conditions.

A pro forma income statement is a financial statement that uses the pro forma calculation method mainly to draw potential investors focus to specific figures when a company issues an earnings. Pro forma financial statement A financial statement constructed from projected amounts. Essentially pro forma financial statements are financial reports based on hypothetical scenarios that utilize assumptions or financial projections.