Pro Forma Financial Statements with Templates and Examples

In our examples below, we’ll use the indirect method of calculating cash flow. However, you’ve already paid cash for the asset you’re depreciating; you record it on a monthly basis in order to see how much it costs you to have the asset each month over the course of its useful life. Changes in cash from investing are usually considered cash-out items because cash is used to buy new equipment, buildings, or short-term assets such as marketable securities. But when a company divests an asset, the transaction is considered cash-in for calculating cash from investing. Changes made in cash, accounts receivable, depreciation, inventory, and accounts payable are generally reflected in cash from operations.

  • 10K filings in the U.S. are public information, so you should be able to easily find them, as long as the company is required to file one.
  • Pro forma is a Latin term that roughly translates to “as a matter of form,” and is most often used to describe a document that is based on financial assumptions or projections, such as a pro forma balance sheet.
  • The most common pro forma financial statements are projected balance sheets, income statements, and cash flow statements.
  • Purchases or sales of assets, loans made to vendors or received from customers, or any payments related to mergers and acquisitions (M&A) are included in this category.
  • If you take out the loan, you might share the pro forma financial statements with the lender to demonstrate your ability to repay the loan.

They have articles governing the preparation of pro forma financial statements for public companies. These are Regulation S-X Article 11, and Regulation S-X 8-05 for smaller companies from 17 CFR 210. Additionally, the SEC may require that pro forma financial statements be submitted when a company is filing for an initial public offering (IPO). This is also true of companies that change tax status from a private, nontaxable company to a taxable C-corporation to file for an IPO.

Your business might benefit by following the SEC guidelines for public companies outlining how to use pro forma statements, even if you’re not a publicly traded business. Pro forma statements offer a realistic estimate of what a merger would look like. For instance, “They can help you identify redundancies, and any new addition that needs to be made,” said Taylor.

Let’s begin with the income statement, using a percent of sales forecast to keep everything straightforward. Start with an income statement from your most recent fiscal year and identify which items you’ll adjust for the projection. These assumptions can be off by a little or a lot, but the bottom line is their outcomes should not be weighed too heavily in decision-making without other indicators to back up the assumption. And as we mentioned earlier, they are not in compliance with GAAP, which means they have to be labeled as pro forma and cannot replace formal financial statements. Expected cash receipts from outstanding invoices and cash payments for existing accounts payable are used to derive cash flows for the next few weeks. This type of pro forma projection takes into account all of your financials for the fiscal year up until the present time, then adds projected outcomes for the remainder of the year.

What are pro forma financial statements?

Managers and individual contributors can also benefit from creating pro forma statements, enabling them to understand different factors impacting business units. However, the information is affected by outstanding estimated days of sales, or the average number histories of economic life of days that payment has not been made by the customers. The closer the projection is to the actual numbers reported, the more accurate it is. Further, if a company has a stable order backlog, the pro forma statement of cash flow is more accurate.

  • As such, net earnings have nothing to do with the investing or financial activities sections of the CFS.
  • Plus, we cover the key elements of the financial section of a business plan.
  • You can use them to study how changes in the price of labor, materials, overhead, and the cost of goods affect the bottom line.
  • The template set includes a 12-month profit and loss statement, a balance sheet, and a cash flow statement for you to detail the current and projected financial position of a business.
  • In other words, the different types of pro forma statements are basically the same financials you’re already accustomed to, just using hypothetical data for future periods.

If you use accounting software, it can create cash flow statements based on the information you’ve already entered in the general ledger. The cash flow statement measures the performance of a company over a period of time. As noted above, the CFS can be derived from the income statement and the balance sheet. Net earnings from the income statement are the figure from which the information on the CFS is deduced. But they only factor into determining the operating activities section of the CFS.

Cash Flow from Financing Activities

They can help you make a business plan, create a financial forecast, and even get funding from potential investors or lenders. When it comes to accounting, pro forma statements are financial reports for your business based on hypothetical scenarios. They’re a way for you to test out situations you think may happen in the future to help you make business decisions.

We plan to use this funding to invest in research and development, as well as to cover the costs of marketing and new product launches. GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments. Access all Xero features for 30 days, then decide which plan best suits your business. No one knows what the future holds, and many things that can affect the company are out of your control (for example, the economy, a pandemic, war, an industry downturn).

By adding the net change figure to the starting cash figure, you will have the starting cash figure for the next month or time period for which you are calculating a cash flow. 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.

Monthly and Quarterly Balance Sheet Template

This means that it should define the transaction, the entities involved, and the periods of time. In this paragraph, you should offer a high-level explanation of the limitations and assumptions the pro forma documents were produced under. For example, if your company recently acquired or dispensed with another company, the assumptions would be the changes in finance expected.

Creating Pro Forma Statements

If, for instance, management is deciding between two separate proposals or business plans, they can use pro forma statements for each scenario and see which might serve their goals and vision best. It’s a tool that business owners, decision-makers, stakeholders, investors, creditors, and others use to examine hypothetical conditions. They can look forward or backward, revealing insights that standard financial statements simply cannot provide.

Therefore, cash is not the same as net income, which includes cash sales as well as sales made on credit on the income statements. With the indirect method, cash flow is calculated by adjusting net income by adding or subtracting differences resulting from non-cash transactions. Non-cash items show up in the changes to a company’s assets and liabilities on the balance sheet from one period to the next. Pro forma financial statements look a lot like regular financial statements. The critical difference is that pro forma statements are based on “what-if” scenarios, not actual financial results. Use this cash flow statement template set to analyze the amount of cash your company has compared to its expenses and liabilities.

Business Budget Templates for Business Plan

For these purposes, pro forma statements are typically created as a part of a financial forecast in financial accounting. Big corporations who have in-house accountants use pro forma statements for financial modeling and forecasting different scenarios. Basic templates for creating pro forma statements can be found online, or they can be created using a Microsoft Excel spreadsheet to automatically populate and calculate the correct entries based on your inputs. Keep in mind, with both those methods, your cash flow statement is only accurate so long as the rest of your bookkeeping is accurate too. The most surefire way to know how much working capital you have is to hire a bookkeeper. They’ll make sure everything adds up, so your cash flow statement always gives you an accurate picture of your company’s financial health.

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