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• What Are Pro Forma Financial Statements Based On?

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What do pro forma financial statements show? There are various things Pro forma financial statement shows but first, let’s understand the word pro forma which means a financial statement based on projection and assumption of what the business future would be to determine what should be happening now. Pro forma financial statement can be thought of as a “Projected results for financial statements in the future, given assumptions about what will happen in the meantime” (Siegel & Yacht, 2009, p. 81). Having said that, a pro forma financial statement shows the results of the choices we make. In other words, every financial decision comes with consequences that either leads to surplus or deficit. Additionally, pro forma shows us what our ideas and plans will look like as we begin to implement them in reality. What are pro forma financial statements based on? As previously asserted, pro forma …show more content…

Various benefits exist in making financial projections on pro forma statements. One of such benefit is that it helps to minimize the risk associated with starting a project without looking at the alternative. For example, Alice had a choice of going to Vegas to make it big, but then she knew the consequences of winning and losing. However, with her assumptions and projections, all pro forma statements gave her a clear view of where she would be based on her choice. Whatever decision she takes becomes her responsibility and the consequences she must bear. Another strategic benefit of making financial projections on pro forma statements is that it makes one situation clearer. Again, when Alice glanced at her pro forma income statement, she discovered that working a second job would eventually increase her income which did not have as much risk as going to Vegas. Having a clearer picture of one’s situation is a fundamental benefit of making financial projections on pro forma (Siegel & Yacht,

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