What is Pro Forma?

Pro forma refers to a set of financial statements that incorporate assumptions or hypothetical conditions regarding past or future events. Pro forma statements are useful for presenting possible financial results, but must be viewed with caution if the underlying assumptions are not valid or not likely. They are typically targeted at potential or existing investors in a business.

The Pro Forma Invoice

An alternative use of the pro forma concept is the pro forma invoice. This is a preliminary version of an invoice that contains the items being sold, their prices, and any other relevant information. It is sent to the buyer when an order is placed. The pro forma invoice is the seller’s best estimate of what a product will cost, and is a useful way to prevent any pricing disputes when the sale transaction is eventually finalized.

Example of Pro Forma Statements

As an example, pro forma statements can be constructed that extend an entity's financial statements through the end of its current fiscal year, containing assumptions regarding the final months of the year that have not yet occurred. Similarly, pro forma statements can include the results of a recent acquisition as though it had occurred earlier, as of the beginning of the year. In both cases, the intent is to provide readers with a best guess about what a full year of financial results would look like, given the presence or absence of certain events.