What It Means and How to Create Pro Forma Financial Statements

What Is Pro Forma?

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.

Pro forma financials are not computed using generally accepted accounting principles (GAAP) and usually leave out one-time expenses that are not part of normal company operations, such as restructuring costs following a merger.

Essentially, a pro forma financial statement can exclude anything a company believes obscures the accuracy of its financial outlook and can be a useful piece of information to help assess a company’s future prospects.

Key Takeaways

  • Pro forma, Latin for “as a matter of form” or “for the sake of form”, is a method of calculating financial results using certain projections or presumptions.
  • Pro forma financials may not be GAAP compliant but can be issued to the public to highlight certain items for potential investors.
  • They can also be used internally by management for aiding in business decisions.
  • It’s illegal for publicly traded companies to mislead investors with pro forma financial results that do not use the most conservative possible estimates of revenue and expense.

What

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