Proforma of Balance Sheets.pptx on business

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1. Pro Forma of Balance Sheets Pro forma means “for the sake of form” or “as a matter of form." When it appears in financial statements, it indicates that a method of calculating financial results using certain projections or presumptions has been used.

2. Pro Forma financial statements are projections of future expenses and revenues, based on a company's past experience and future plans . Pro Forma Budget Documents A budget anticipates the inflow of projected revenues and the outflow of funds for a defined future period, usually a fiscal year. A budget is based on certain assumptions about future expenses and revenues. It takes into account past expenses and revenues and factors in the costs of the company's plans for the fiscal year.

3. Pro Forma Company Income Statements 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. 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. In this case, the company is projecting the future, based on its knowledge of past sales and expenses and factoring in expected changes.

4. Pro Forma Earnings Projections A company may present a pro forma statement  to inform investors about their internal assessment of the financial outcome of a proposed change in the business . For example, if a company is considering an acquisition or a merger, it may publish a pro forma statement of the expected impact of the move on its future earnings and expenses.

5. Pro Forma Financial Accounting In financial accounting, a pro forma earnings report excludes unusual or nonrecurring transactions . These excluded expenses could include declining investment values, restructuring costs, and adjustments made on the company’s balance sheet that fix accounting errors from prior years.

6. Pro Forma Managerial Accounting 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. These are models that forecast the expected result of the proposed transaction. They focus on estimated net revenues, cash flows, and taxes . 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 .

7. Limitations of Pro Forma Statements Investors should be aware that a company’s pro forma financial statements can hold figures or calculations that do not comply with GAAP , which is the set of standards followed by public companies for their financial statements . In fact, they can differ vastly. Pro forma results may contain adjustments to GAAP numbers in order to highlight important aspects of the company's operating performance.

8. How to Create a Pro Forma Statement Calculate the estimated revenue projections for the business. This process is called pro forma forecasting. Use realistic market assumptions. Do your research and speak with experts and accountants to determine what a normal annual revenue stream is as well as asset accumulation assumptions. The estimates should be on the conservative side. Estimate total liabilities and costs. Liabilities include loans and lines of credit. Costs include lease payments, utilities, employee pay, insurance, licenses, permits, materials, and taxes. Keep the estimates realistic.

9. Use the revenue projections from Step 1 and the total costs found in Step 2 to create the first part of your pro forma, This part will project your future net income (NI). Estimate cash flows. This part 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, under accrual accounting, certain revenues and expenses are recognized prior to or after cash changes hands.

10. 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.