Pro Forma Income Statement Importance

This should ideally be done before year s end.

Pro forma income statement importance. Pro forma financial statements provide companies with an estimation of future financial performance. Sit down with an income statement from the current year. Pro forma statements are used to create a budget and determine the need of the company for capital. The problem with these statements is that they report past financial history which may or may not repeat itself.

Pro forma income statement also known as pro forma profit and loss means how the adjusted income statement will look like when certain assumptions like non recurring items restructuring costs etc were excluded or if a loss making unit is discontinued. Two types of pro forma statements are important to small business owners. Pro forma income statements. Pro forma statements can also help entrepreneurs plan future business operations.

All companies prepare financial statements of some sort with the most common being the income statement balance sheet and statement of cash flows. The changes can include cutting costs or increasing the price of goods and services. This gives management realistic numbers of cash needs. A pro forma statement is a statement that presents the income of the entity in the estimated period and the expenditures to be made in a categorical manner and summarizes the result of such period activities as profit or loss.

Using these financial statements you can plan for the future and lower your risk as well as attract investors or get approved for financing. They consider both the best case scenario and the worst case scenario allowing you to have a more knowledgeable approach to your business transactions. The income and expenditure of the future period of the enterprise can be estimated by this table. Pro forma financial statements are created by looking at and predicting budget changes based on various factors.

The income statement contains projected figures relating to the company sales revenue costs of goods sold and expenses. The income and cash flow statement. To create a pro forma income statement work from your current income statement and try to predict the future changes. What is the pro forma income statement.

Short of having a crystal ball pro forma financial statements can help you predict things like net income and gross profit in the future.