What is a pro forma financial statement?
November 2023 | Published by Xero
Pro forma financial statement (definition)
A pro forma financial statement is a document that predicts future financial results using estimated data.
By looking at recurring income and costs, an accountant or bookkeeper can predict what a future profit-and-loss statement, balance sheet or cash flow statement might look like.
Reasons to use pro forma financial statements
Some businesses use pro forma financial statements to guide or support their financial decisions and to help with things like financing, budgeting, investment planning, and benchmarking.
Types of pro forma financial statements
1.Pro forma P&L statement: showing predicted expenses, revenue and profits.
2.Pro forma balance sheet: showing future assets and liabilities of the business, including cash reserves and debts owed.
3. Pro forma cash flow statement: showing cash made (or lost) from normal operations vs cash secured through financing – and how those balances are affected by investments in assets. Small businesses more commonly use cash flow forecasts to inform practical decisions about spending.
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Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.