Pro Forma Financial Statements Flashcards, test questions and answers

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What is Pro Forma Financial Statements?

A pro forma financial statement is a financial statement that is prepared in advance of a planned transaction or event. It typically outlines the expected future income and expenses of the business based on plans and estimates. A pro forma statement can be used to assess the potential impact of a proposed venture or transaction on an organization’s finances.Pro forma statements are often used to provide investors with an idea of what a company’s financial position would look like if the proposed venture or transaction were to take place. This information helps investors decide if they want to invest in the company or not. Pro forma statements also play an important role in helping companies plan their future operations, as they can provide an indication of how much money will be available for expansion and other projects over time.Generally, pro forma statements contain both income and expense items that are expected in the near future such as revenue, expenses, capital expenditures, debt service payments, depreciation costs, etc. The goal is to present these items as accurately as possible so that investors can make informed decisions about their investments. Pro forma statements give investors insight into how profitable a potential investment could be before they commit any funds. They also allow the investor to compare projected performance against actual results after completion of the transaction or event. This comparison helps determine whether goals have been met and provides insight into where any changes may need to be made for better success in future transactions or events.