A pro forma cash flow statement is a financial report that shows projected cash flow generated from business operations. Pro forma cash flow statementĬash flow is king and knowing that a business will generate future cash flow based on underlying assumptions is critical for business survival. A pro forma income statement will show how much a business or company expects to make in sales and revenue, it also highlights forecasted fixed or variable operating expenses and ultimately, shows how much profits and retained earnings can be made at the end of a future financial period. This is where a pro forma income statement comes in handy. The process of forecasting revenue, expenses, and profit is very important in financial planning and management. A pro forma balance sheet will show the forecasted assets, liabilities, and equity position of a business or organization at any period in view. For this reason, some people interchange the terms ‘pro forma balance sheet’ and ‘ balance sheet forecast’. Pro forma balance sheetĪ pro forma balance sheet typically has all the components of an actual balance sheet, the major difference is that some or all of the financial reports have been forecasted based on expected events. Pro forma statements can be created for all three types of financial statements. There are three main types of financial statements, the statement of financial position, also known as the balance sheet, the income statement, also known as the profit and loss statement, and the cash flow statement. Sometimes, pro forma financial statements are simply altered or restated actual financial statements to show the impact of one-off financial decisions. Pro forma statements are useful financial planning tools that provide a numerical perspective of a business’s financial position and performance in future periods. A realistic revenue amount can then be forecasted and used in a pro forma income statement. This can be done by analyzing past sales, orders for products or services in the current period or any backlog orders yet to be fulfilled. For example, in creating a pro forma income statement, you would need to forecast revenue for future periods. Simply put, pro forma financial statements are financial reports that are created on hypothetical assumptions. This forecast forms the foundation of pro forma financial statements. In reality, no one knows exactly how much revenue will be made or how much expenses will be incurred at the end of a given period however, a realistic forecast can be determined. While actual financial statements show how a business has performed in the past, pro forma financial statements project how a business will perform using hypothetical scenarios. If you own a business or manage the finances of an organization, you would often think of different possible outcomes for revenue, capital costs, investments, or profits based on certain assumptions.
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