Learn the definition of pro forma and the basic steps to create a pro forma projection. Consider that the forecast is simply a prediction. You can change your forecast based on your best guess.
- What exactly is a pro forma statement?…Well, it's essentially an estimate.…An estimate of how well you think your company's going to do.…An estimate of how many resources you may need.…An estimate of future cash flows for the company.…Okay, how official is it?…Well, it's not the same thing as a report of GAAP net income…but it can still be quite informative.…There are no universal guidelines for pro forma statements.…Basically, companies just use their own discretion…when making these calculations.…
That being said, they'll leave out things…that are either one-time costs,…or those that obscure projections for the future.…For example, some companies will leave out…amortization expense because it's not an item…that's paid for as a part of cash flow.…However, it is considered an expense under GAAP rules…since it represents the lost value of an asset over time.…Amortization directly reduces the asset amount…on a balance sheet.…Remember, the goal is to provide investors…with outlooks that are as honest as possible.…
LinkedIn Learning (Lynda.com) is a PMI Registered Education Provider. This course qualifies for professional development units (PDUs). To view the activity and PDU details for this course, click here.
The PMI Registered Education Provider logo is a registered mark of the Project Management Institute, Inc.
- Explain the four different types of financial statements.
- Distinguish between the types of moving averages.
- Determine a seasonal adjusted trend.
- Break down pro-forma financial statements.
- Identify cash flows, and what increased liabilities and decreased earnings generally indicate.
- Tell what a regression is.
- Outline the naive approach.