Pro Forma Balance Sheet Examples, Templates

Different sequences of events can be used to see how past and future expenditures or selling might affect the financial position or profitability of your business. It usually results into a pro forma balance sheet or income statement, which are financial reports stemming from hypothetical scenarios.

The transparency could score you points for customer satisfaction. Pro forma templates can give you insight into allocating business resources and identifying potential risks that may impact your business. Financial statements provide a snapshot of a company’s financial health at any given time. In our Wal-Mart example, the company would receive a large amount of cash from the line of credit and the new sales.

When do we use pro forma statements?

We’re collaborative, explaining what the numbers mean, rather than just emailing reports. It’s time for the “loss” part of “Profit and Loss.” Calculate the cost of goods sold for each month in your projection. Looking at both best case and worst case scenarios helps you make financial decisions based on challenges you may face in the future. For instance, what happens if your main vendor raises their prices like they did last year? Or how will that proposed transaction of buying new equipment impact you long term? Risk analysis lets you take the future for a test ride, and try out different outcomes.

Although we need both the interest and principal for complete How to Create a Pro Forma Balance Sheet financial statements, for now, we’re going to focus on the balance sheet and ignore interest payments. Assuming nothing much changed, we can grab last year’s principal amount from the cash flow statement (because that’s where we find it). According to the SEC, for public companies, a pro forma balance sheet should have the same dates, plus one year from the last submitted balance sheet. If interim period balance sheets were submitted, the company should pick up from where they left off.

How to Create a Pro Forma Cash Flow Statement

For example, the https://personal-accounting.org/ might have to pay for land, materials, and fees to contractors who build the facility. Later, after the project is completed, the cash flow statement might assume increased payments from customers. Companies in the U.S. follow Generally Accepted Accounting Principles as a best practice. While GAAP standards set guidelines on reporting information accurately and transparently, sometimes it’s useful to include or exclude information. In particular, you might want to know how an anticipated change may affect a company’s earnings.

You can address this fact simply with a final paragraph in the compilation reports, and the author may elect to include the reason for the lack of independence. Finally, in each page of the pro forma information, there must be a reference to the compilation report. Then, you can create your pro forma statement of income using the data gathered in the previous steps. They are useful tools that business owners, investors, creditors, or decision-makers can use to examine different iterations of future events based on certain financial assumptions. This can help predict how well the business is likely to perform in the future. Since the dot-com bubble burst, the SEC has cracked down on using pro forma financials to protect the public from being misled. One-time expenses are also excluded from pro forma because they are not a regular part of operations and thus are irrelevant to the Company’s performance.