ProForma

Pro forma, from the Latin phrase pro forma, meaning for the sake of form, is a term used in business and accounting to describe documents or figures prepared to present a proposed or hypothetical scenario rather than actual results. It is commonly applied to financial statements, invoices, and other documents that illustrate a given assumption or transaction.

Pro forma financial statements are the most widespread usage. These include income statements, balance sheets, and cash flow statements prepared as if a transaction or event had already occurred. They are used for planning, budgeting, investor presentations, and evaluating potential deals. Pro forma figures typically adjust or exclude items such as one-time charges, restructuring costs, or amortization to facilitate comparability. They are not audited and may differ from GAAP or IFRS standards; they should be clearly labeled to avoid misinterpretation.

Pro forma earnings or pro forma income are non-GAAP measures that present earnings after specified adjustments. While they can aid comparison across periods or scenarios, they can also be used to portray a more favorable picture. Regulators often require disclosure of the adjustments and reconciliation to standardized accounting measures.

A pro forma invoice is a preliminary bill of sale used in international trade. It provides details such as item description, quantity, price, and terms before shipment. It is not a demand for payment and does not replace a formal invoice; it helps buyers arrange financing, customs, and logistics.

In mergers and acquisitions, pro forma financials show the combined entity’s results as if the acquisition occurred at the start of the period. These projections help assess potential synergies, financing needs, and the impact on earnings and equity. All pro forma information should be presented with clear caveats about its hypothetical nature.