What are the basic benefits and purposes for a company to develop pro forma statements?
Sarah Martinez
Updated on January 01, 2026
Pro forma statements for each plan provide important information about future expectations, including sales and earnings forecasts, cash flows, balance sheets, proposed capitalization, and income statements. Management also uses this procedure in choosing among budget alternatives.
What is the benefit of developing a pro forma financial statement?
The pro forma income statement provides forecasts of potential sales revenue, costs of goods sold, and expenses. Pro forma income statements also provide hypothetical net profits from business operations using the same data as the income forecast.
What is a pro forma cash budget?
A pro forma budget forecasts revenues and expenses in advance for a particular project, such as a merger, loan, bankruptcy, new debt or equity payments. A pro forma operating budget depicts the anticipated results of the proposed change, including the projected cash flows, net revenues and taxes.
How does the pro forma statement of cash flows differ from the cash budget?
The purpose of a cash flow budget is to show the cash inflows and outflows, usually on a monthly basis and for the next 12-month period. Pro forma cash flow budgets usually have three sections for operating, investing and financing activities. Changes in business and economic conditions can affect cash flow.
What are 3 benefits of creating a pro forma?
Pro forma statements allow management to:
- Identify the assumptions about the financial and operating characteristics that generate the scenarios.
- Develop the various sales and budget (revenue and expense) projections.
- Assemble the results in profit and loss projections.
- Translate this data into cash-flow projections.
What are the four steps in developing a pro forma income statement?
In developing the pro forma income statement we follow four important steps:
- compute other expenses,
- determine a production schedule,
- establish a sales projection,
- determine profit by completing the actual pro forma statement.
How do you do a pro forma cash budget?
How to Create a Pro Forma in 4 Steps
- Calculate revenue projections for your business. Make sure to use realistic market assumptions to write an accurate pro forma statement.
- Estimate your total liabilities and costs. Your liabilities are loans and lines of credit.
- Estimate cash flows.
- Create the chart of accounts.
What is a proforma cash flow statement?
Pro forma cash flow is the estimated amount of cash inflows and outflows expected in one or more future periods. If excess cash is projected by the pro forma document, this information can also be used to plan the most appropriate investment strategy for the cash.
How do you create a pro forma cash budget?
What is a pro forma cash flow statement?
Pro Forma Cash Flow Statement is a popular accounting practice that reports a voluntary statement prepared by a firm for presenting financial projections. It can be defined as the probable amount of cash inflows and outflows expected in future periods for a specific duration of time.
What should a pro forma include?
How to Do a Pro Forma Statement
- Calculate revenue projections for your business. Make sure to use realistic market assumptions to write an accurate pro forma statement.
- Estimate your total liabilities and costs. Your liabilities are loans and lines of credit.
- Estimate cash flows.
- Create the chart of accounts.
What is included in a pro forma balance sheet?
Pro Forma Balance Sheet. A pro forma balance sheet summarizes the projected future status of a company after a planned transaction, based on the current financial statements.
What is included in a pro forma income statement?
In financial accounting, pro forma refers to a report of the company’s earnings that excludes unusual or nonrecurring transactions. 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.
What are the four elements in cash budget?
The cash budget represents a detailed plan of future cash flows and is composed of four elements: cash receipts, cash disbursements, net change in cash for the period, and new financing needed.
What is the purpose of a pro forma statement of cash flow?
Pro forma cash flow statement refers to the cash flow statement prepared by the business entity to prepare the projections of the amount of cash inflow and amount of cash outflow which they expect to have in future from the different activities which include operating activities, investing activities and financing …
