Short definition: Pro forma refers to a financial statement or projection that is based on hypothetical assumptions or adjustments, rather than actual historical data.
Explanation: Pro forma statements are often used to forecast the potential financial impact of a future event, such as a merger, acquisition, new product launch, or change in capital structure. They can also be used to present financial information in a more favorable light by excluding certain expenses or one-time events.
Example: A company might create a pro forma income statement to show what its earnings would be if it were to acquire a competitor or launch a new product.
Additional information (optional): Pro forma statements are not prepared in accordance with generally accepted accounting principles (GAAP) and should be interpreted with caution. They are often used in conjunction with historical financial statements to provide a more complete picture of a company’s financial performance and prospects.