Financial modelling terms explained

Pro Forma

Pro forma is a Latin phrase that means "for the sake of form or appearance." In finance, pro forma is used to describe a forecast or projection of financial information that does not necessarily reflect actual historical performance.

What Does Pro Forma Mean?

Pro forma is a Latin term that means "for form" or "in form." In the context of financial modeling, pro forma usually refers to a forecast or projection of future financial performance. A pro forma financial statement is a document that shows how a company's financial position would look if a particular event or transaction had occurred. For example, a pro forma statement might show how the company's balance sheet would look if it had just issued new equity shares.

How Can You Use Pro Forma Reports?

A pro forma report is a financial statement that shows the expected financial results of a business. Pro forma reports can be used to forecast the future financial performance of a business, to assess the impact of a proposed business transaction, or to evaluate the financial health of a business. Pro forma reports are typically prepared by businesses that are considering an initial public offering (IPO) or a merger or acquisition.

What Are the Different Types of Pro Forma Reports?

There are a variety of pro forma reports that can be used to help businesses make better financial decisions. The three most common types of pro forma reports are the income statement, the balance sheet, and the cash flow statement. The income statement shows a company's revenues and expenses over a specific period of time, while the balance sheet shows a company's assets, liabilities, and equity at a specific point in time. The cash flow statement shows how much cash a company has generated and used over a specific period of time.

What Should You Look for When You're Reading a Pro Forma Report?

When you're reading a pro forma report, you should be looking for the assumptions that the company has made about the future. You should also look at the company's historical performance to get a sense of how realistic the projections are. If the company has a lot of debt, you should also look at the debt ratios and interest payments to get a sense of how sustainable the company's projections are. Finally, you should look at the company's cash flow to make sure that it will be able to cover its expenses in the future.

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