Pro Forma Financial Statements: A Comprehensive Guide for Businesses

Like a bona fide company financial statement, it also takes into account the income statements, balance sheets, and more. You can learn more about the variations of such documents by checking out our article and examples below. For cases in which your company is specifically seeking funding, you want to show your potential investors how the company’s financial results will change with their investment. There may be several sets of these pro forma documents, each based on different potential investment amounts, or just one based on what you think you need.

It’s an all-in-one solution that helps effectively capture leads, look at future sales and financial ratios, and manage contacts. The monday.com pro forma template is all about helping shake the habit of reactive financial management. With the help of our easy-to-create automations and custom rules, proactively setting up all sorts of hypothetical scenarios will run all day, every day. A pro forma template helps teams understand what data is needed to model different scenarios based on pre-built questions.

What Is a Pro Forma Invoice?

In the case of estimated cash overages, the company can produce a plan for investment. Arguably, the statement of cash flow is the most important of the pro forma documents. If the pro forma balance sheet and income statements lead to a statement of cash flow that shows inadequate funds for what management has planned, the other documents will be invalid proforma example and may need to be reworked. Pro forma financial statements, including cash flow statements, provide insights into a company’s anticipated cash inflows and outflows based on specific business scenarios. This allows management to anticipate potential liquidity issues, evaluate financing options, and make informed decisions regarding cash flow management.

In essence, pro forma cash flow statements contribute to strategic planning and help minimize financial risks. Pro forma earnings per share (EPS) are calculated by dividing a firm’s net income (and any adjustments) by its weighted shares outstanding, plus any new shares issued due to an acquisition. This metric determines the financial outcomes of any acquisition or merger and tells the parent company whether the transaction will be accretive (good) or dilutive (bad) to the financial state of the company. Pro forma EPS are calculated in the pro forma income statement, but the figure is also used in the pro forma balance sheet and the pro forma cash flow statement, when necessary.

It’s not called “amateur forma” for a reason

Use this Excel pro forma invoice template to create your own pro forma invoices. These are often intended to be preliminary or illustrative financials that do not follow standard accounting practices. Companies use their own discretion in calculating pro forma earnings, including or excluding items depending on what they feel reflects the company’s true performance or future performance. 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. Start composing your pro forma by projecting your company’s overall sales and costs of goods sold (COGS).

• Clearly stipulate the agreed-upon payment terms, such as advance payment, on receipt, or installment plan, and provide details regarding delivery, including mode of transport and estimated time.
• Once this negotiation is over, it is good practice for the business to send a preliminary draft of the invoice to the buyer showing the agreed-upon deliverables.
• For this reason, professionals typically turn to forecasts and financial projections to guide their plans and answer critical “what if” questions.
• Just like the second step, you will make a forecast, only this time, on the expenditures.

To help you understand what proforma invoices look like, we’ve used Zoho Invoice to create a sample proforma invoice. To help you understand what proforma invoices look like, we’ve used Zoho Invoice to create a sample proforma invoice. Before shaking hands on a deal, businesses often negotiate about the terms of the deal such as the selling price, discounts, and delivery dates. Once this negotiation is over, it is good practice for the business to send a preliminary draft of the invoice to the buyer showing the agreed-upon deliverables.

When to Use Pro Forma Financial Statements

They prepare pro forma financial statements to estimate the impact on future revenue, expenses, and profitability, considering various factors such as initial investment, operating costs, and expected sales. This helps them align their growth strategy and make informed decisions on whether or not to proceed with the expansion. Pro forma financial statements often play a significant role in public reporting, especially when dealing with the Securities and Exchange Commission (SEC).