Pro Forma Income Statement Meaning

Pro forma income statements.

Pro forma income statement meaning. Pro forma in this context means projected. Excluded expenses could include declining investment values. Pro forma is a fancy word for future or projected. In financial accounting pro forma refers to a report of the company s earnings that excludes unusual or nonrecurring transactions.

The proforma income statement is a proven method real estate investors use to evaluate a rental income property s future financial performance over time. Pro forma statements are useful with regard to tracking future financial direction earnings guidance an earnings guidance is the information provided by the management of a publicly traded company regarding its expected future results including estimates and occurrences often including some historical numbers to. A pro forma income statement is a projected income statement. Pro forma income is the amount of projected profit or loss given the existence of certain assumptions regarding future activities.

An income statement is the same as a profit and loss statement a financial statement that shows sales cost of sales gross margin operating expenses and profits. A financial statement that a company prepares to consider the effects of a potential activity. What is the pro forma income statement. Pro forma financial statement.

But for our purposes we will be using the first definition. For example a company might present a pro forma income statement of what its income may have looked like if it did not include the money losing division it sold off. For example management might anticipate expenses remaining the same next year but income increasing by 20 percent. If the underlying assumptions are incorrect then the amount of pro forma income will not match the amount actually earned.

Management can also simply roll financials over from one year to the next and alter the pro formas slightly for planning purposes. This occurs because the proforma income statement is designed to display what the property s financial data such as revenue and expenses become during any specific year over the course of. For example if a company is considering acquiring another it may prepare a pro forma financial statement to estimate what effect the acquisition would have on its own financial circumstances.