Pro Forma Financial Statements: Examples What Is a Pro Forma? Video & Lesson Transcript

pro forma example

This article will explain what a pro forma template is, share our custom pro forma template for Excel, and how can be used to boost sales forecasting abilities. But to seize those opportunities, it’s essential to constantly look ahead. Working with a lawyer for a business formation is smart since you will effectively and efficiently avoid making legal mistakes, negatively impacting your company’s future.

What is an example of a pro forma?

Pro forma statements look like regular statements, except they're based on what ifs, not real financial results. As in, “What if my business got a $50,000 loan next year?” Your pro forma statements for that scenario would show what your income, account balances, and cash flow would look like with a $50,000 loan.

Allow us to help you determine if our team/system is right for your office. Call or send us an email using the form below and we will reply promptly. Finally, the Before Tax Cash Flow is what’s left over after deducting any additional below NOI expenses such as loan payments or capital expenditures.

Pro Forma in Business

The scenarios also tell us that the proposed financing for this deal, with 85% leverage, won’t work because some of the lenders lose money in the Extreme Downside Case, and the equity investors also get wiped out. In addition to these new features and line items, this model can also become more complex with the addition of scenarios. We show “Loss to Lease,” to represent the difference between market rents and in-place rents, as well, but that is not specific to multifamily – it could appear on almost any pro-forma. The main items in “Debt Service” are Cash Interest paid on Debt and Principal Repayments. You might calculate these with the IPMT or PPMT functions in Excel, or you could do it manually, depending on the terms.

pro forma example

That’s when hiring a professional is the fastest and most cost-effective approach. You can try the first round yourself before considering a professional, especially if you have a background in finance (or perhaps an MBA) or are short on cash. The process of struggling through the various pro forma financial models will give you an intimate understanding of your numbers. Commercial real estate investors, brokers, lenders, and appraisers often use the net operating income from a simple proforma like this to estimate a property’s market value using the capitalization rate. Sometimes you will see this term written with two words as “pro forma” and other times you will see it written more concisely as “proforma”. Both are commonly used in the commercial real estate industry and have the same meaning.

Other Income

Remember, what distinguishes these pro forma statements from your standard financials are the adjustments, not the calculations or even the format. Certain regulatory bodies and scenarios will require specific information but, from a foundational perspective, the framework for each is essentially the same as what you already use when preparing your financials. Pro forma statements demonstrate to investors and lenders that a company is worth investing in. In addition, it’s easier to prove sustainability by presenting well-researched pro forma statements to a would-be stakeholder. However, the cost of hiring an attorney or vetting one can turn many business owners away from engaging in this critical part of the process.

  • Pro forma statements are helpful during periods of rapid growth or change.
  • What you really want to do is take into consideration everything possible to project sales.
  • Here’s a closer look at what pro forma financial statements are, how they’re created, and why they’re a key aspect of financial decision-making.
  • The most common are the pro forma income statement, balance sheet, and cash flow statement.

Nearly all property acquisitions and developments are funded partially by Debt, so you will almost always see the Interest Expense on that Debt on the pro-forma. But it’s not quite the same as Unlevered FCF because Adjusted NOI excludes income taxes, the Change in Working Capital, and several other items that go into Unlevered FCF. CapEx represents items that are not specific to one tenant, such as a new roof, elevator, air conditioning, heating system, etc. (usually a $ per square foot or square meter figure). Some are projected based on a % of Effective Gross Income, some are based on $ per square foot or $ per square meter figures, and some are percentages of the property’s value.

What is the purpose of a pro forma statement?

As a lawyer and business professional, I understand the value of providing personal service and focused legal answers to clients navigating a rapidly changing regulatory environment. I am a startup veteran with a demonstrated history of execution with companies from formation through growth stage and acquisition. A collaborative and data-driven manager, I love to build and lead successful teams, and enjoy working full-stack across all aspects of the business. An investment projection would showcase what an influx of cash could potentially do to your business. For example, if you were contemplating taking on an investor, it would give you a risk vs. reward scenario. Pro forma templates can give you insight into allocating business resources and identifying potential risks that may impact your business.

  • Sometimes you will see this term written with two words as “pro forma” and other times you will see it written more concisely as “proforma”.
  • Pro forma financial statements provide predictions on how the future might unfold for companies you’re investing in.
  • The true value of pro forma statements goes beyond the numbers they show.
  • 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.
  • And if the company uses debt to fund the project, there might also be a substantial loan balance on the liabilities side of the balance sheet.

Pro forma financial statements project how a company might perform in the future if the business takes an assumed course of action. Unfortunately, there are also disadvantages that accompany pro forma financial statements. If, for example, you want to calculate the impact on the debt-to-equity ratio in future years, you can use the data from pro forma reports. Management could take a set of assumptions and then create different likely and unlikely scenarios to better understand how a company’s performance is impacted in each case.

Discover a Better Way to Manage Pro Forma Statements and Finance Operations

Each type of pro forma financial statement will be further discussed in detail; such as the pro forma cash flow statement, pro forma income statement, and pro forma balance sheet. To ensure that financial statements are reporting accurate information for public use, they have to follow generally accepted accounting principles, or GAAP. GAAP are strict guidelines that all businesses must adhere to in the United States when preparing their financial statements. Companies face heavy fines, sometimes in the millions, and even federal jail time for not following GAAP.

pro forma example

It is imperative that you hire incorporation lawyers for specialized projects or one-time needs. Not addressing the critical details of business documents can negatively impact you. A pro forma cash flow statement could detail any payments involved in a hypothetical project. For example, the company 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.

It shows the possible income in the next few years considering the situation. There is no visible difference in the format except for the time and value of the inputs. While pro forma financial statements project the future, there is no guarantee that those predictions are accurate.

  • Using pro forma results to grossly misconstrue GAAP-based results and mislead investors is deemed by the U.S.
  • I love contracts – and especially technology-related contracts written in PLAIN ENGLISH!
  • In particular, you might want to know how an anticipated change may affect a company’s earnings.
  • If your company has a high debt-to-equity ratio, it will show on the balance sheet.

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