How to Build a Pro Forma Model in Excel Step by Step Guide

This helps her anticipate an increase in sales with the introduction of new product lines and a renovated space. Bea projects a 20% increase in sales for the next year, keeping her estimates conservative to stay grounded. Bea’s Boutique has been the go-to spot for fashion-forward attire for three years. As the boutique gears up for its fourth year, Bea decides it’s time to expand her offerings and possibly renovate the space to attract more foot traffic. She knows this will require a significant investment and wonders if the numbers add up in favor of her vision. But enough with what a “pro forma” is, you care about how to quickly create a Pro Forma Income and Financial Statement.

You’d answer these types of questions with pro forma income statements. Other use cases include budgeting and analyzing mergers and acquisitions. Making pro forma financial models with Excel is a valuable skill that is essential for any business, large or small. Building a model does take time and patience, as it involves significant data entry, research and assumptions that affect the final scenario. Be advised that issuing pro forma financial statements to the public can be problematic, especially since the pro forma statements and the GAAP statements can vary so widely. Investors should be cautious when evaluating these types of statements because they present a considerably more favorable picture of the business.

Statements of cash flow, or cash flow statements, measure the sources of a company’s cash and how it uses that cash over the stated period. Pro forma statements of cash flow estimate how much cash inflow and outflow is expected in one or more future periods. Often requested by banks, they may also be prepared as a part of the annual budgeting or forecast and estimate where cash shortages may occur in order to obtain additional funding. In the case of estimated cash overages, the company can produce a plan for investment. Arguably, the statement of cash flow is the most important of the pro forma documents.

The pro forma financial statements, including pro forma earnings per share calculated, must be submitted. A pro forma balance sheet helps you choose a financial forecasting model that accurately predicts your company’s financial health. By comparing this forecasted balance sheet with current numbers, you can assess whether you’ll need additional funding or how future growth might affect your capital structure. Pro forma reporting involves creating financial projections based on hypothetical scenarios and assumptions. These projections serve as valuable insights into how a business might perform in the future under different conditions. Unlike traditional financial statements, which reflect historical performance, pro forma reports look ahead, offering stakeholders a glimpse into potential outcomes.

What is a pro forma financial statement?

Bricks is an AI tool that makes creating dashboards & reports from your spreadsheet data a breeze. Just import your data, describe what you want to build, and get a high quality dashboard in seconds using AI. Get free guides, articles, tools and calculators to help you navigate the financial side of your business with ease. Our team is ready to learn about your business and guide you to the right solution. Note that the balance verification is not zero yet (0 means the balance sheet balances), because the cash and cash equivalents value is still empty. Let’s roll up our sleeves and dive into a case study that brings the mystical art of pro forma analysis down to earth.

Essentially, it’s a measure of how much of the variance in your dependent variable can be explained by your independent variable(s). Bricks is the AI-first dashboard and reporting tool for spreadsheet data. Create charts, graphs, and analyze your data in seconds – no data analyst needed.

• In this way, your management team (or C-suite) has all the information they need to make informed decisions.
• Pro forma reporting involves creating financial projections based on hypothetical scenarios and assumptions.
• However, for all regular income statements presented in a filing, there must also be a pro forma statement.
• According to the SEC, for public companies, a pro forma balance sheet should have the same dates, plus one year from the last submitted balance sheet.
• While finance focuses on forward-looking projections, accounting relies on historical data—pro forma financial statements help bridge the gap between the two.
• Companies often use pro forma statements to present their finances in the most favorable light.

Ultimately, this section is used by managers and stakeholders to assess the performance of a business under different assumptions and economic conditions. As we discussed, there are four essential types of pro forma statements, but there are slightly different scenarios for each. The purpose of the financial forecast will impact which one you choose. When your financial statements are put into pro forma financial statements, you adjust material charges, credits, and tax effects to the transactions. In other words, you get an idea of what your financial results would have been if the event had already occurred. These are factually supported by the data from the original financial statements.

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Types of Pro Forma Financial Statements

By drawing on info from the income statement and the cash flow statement, you can create pro forma balance sheets. However, you’ll also need previous balance sheets to make this useful—so you can see how your business got from “Balance A” to “Balance B.” A pro forma model is a document used to forecast a company’s financial performance in advance. Pro forma models can help businesses plan operations, predict outcomes, and evaluate risks. They are based on projected future performance, using historical trends and accurate assumptions regarding changes in the future.

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If your company must produce an introductory paragraph with its pro forma documents, it should describe the content of your pro forma documents. This means that it should define the transaction, the entities involved, and the periods of time. In this paragraph, you should offer a high-level explanation of the limitations and assumptions the pro forma documents were produced under. For example, if your company recently acquired or dispensed with another company, the assumptions would be the changes in finance expected. The limitations should discuss the challenges of predicting the financial future of a company. Use the templates found here to create your own cash flow statement forecast.

More than that, though, you could see how a particular event would affect your cash flow. Whether you’re self employed or run a small-midsize business, these following inexpensive accounting programs will help get your finances in order. By following the steps covered in this article, you can build a model that offers a realistic scenario for your business. A lot of it is about trial and error, so make sure that you are taking the time to edit, adjust and refine your model whenever you need to. After you have set up the initial grid of rows and columns, it is important to properly format the cells.

• This type of projection could be shorter term (from the beginning of the current fiscal year).
• During the late 1990s dot-com boom, many internet companies used pro forma results to transform losses into apparent profits by excluding significant costs.
• Using pro forma templates can save you valuable time when creating your own pro forma income statements.
• She notes a steady increase in sales each year and identifies seasonal trends that impact her business.
• It’s a bit like detective work, sifting through files and receipts, but it gives her a solid foundation.

Even public companies are not required to get their pro forma document audited by an independent auditor, according to the SEC. However, to comply with professional auditing standards, the documents can be audited at the request of the company or a third party. The SEC guides auditors to ensure that they do not take on too much responsibility for the company’s claims. The company’s management is responsible for the documents’ overall validity.

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His knack for identifying opportunities and solving complex financial problems has earned him a reputation as a trusted finance expert. You’d consider the rain forecast (seasonal trends), whether you’re planting more thirsty plants (new products), and how well your soil retains moisture (cash on hand). The first step is akin to predicting how popular your lemonade stand will be at the neighborhood block party. You’ll need to consider factors such as past sales data, market trends, and any upcoming products or services. If you’re just starting, look at industry benchmarks or conduct market research to make educated guesses. Let’s break down the main components of a pro forma analysis into something more digestible – think of it as separating your ingredients before baking a cake.

Pro how to build a proforma forma statements are financial projections that ask and attempt to answer “what if” questions. These financial modeling tools are one of the most important to help a company prepare for any kind of scenario imaginable and map out a future trajectory. Cash outflows are detailed under categories like Preliminary Expenses, Direct Cash Spending, Increase in Receivables, Increase in Inventory, Purchase Long-Term Assets, and Principal Repayment. This ensures that all cash outflows are accounted for, helping businesses identify major expenses and their timing across the forecast period. Pro forma models should be used to help guide a company’s decisions, enabling calculations to be made and objectives to be tested.

These statements show what a company expects to earn in upcoming quarters. For instance, when Apple Inc. (AAPL) releases its quarterly earnings, it often includes pro forma projections for the next quarter, factoring in expected iPhone sales and potential supply chain costs. Bea’s journey through pro forma analysis not only illuminated the path for her boutique’s expansion but also provided a blueprint for managing future growth. By approaching the process with diligence, realism, and a touch of optimism, she was able to make informed decisions that aligned with her vision for Bea’s Boutique. Just like Bea, you can apply these steps and lessons to navigate your business’s financial future with confidence. Bea starts by gathering her sales data, costs, and cash flow statements from the past three years.

Example 2 – Making Pro Forma Balance Sheet

With Bricks, you can create visuals like dashboards, reports, and charts based on your spreadsheet data, all while keeping everything connected with your docs and presentations. It’s a game-changer for anyone looking to simplify their financial planning. To project cash flow, you’ll want to consider both operating activities (like sales and expenses) and non-operating activities (like investments or loans). List these activities in your spreadsheet, and estimate the cash inflows and outflows for each. Now that your spreadsheet is ready, it’s time to start filling it with numbers. This is where you estimate how much money you expect to bring in over the specified period.

This pro forma statement can be part of a larger cash flow forecast used for decision making. Ah, the pro forma cash flow statement, the unsung hero of financial projections. It’s like the pulse check for your business, ensuring you don’t end up gasping for air (financially speaking). Let’s dive into how you can forecast cash inflows and outflows with the precision of a skilled gardener ensuring their plants thrive.