Topics: Balance sheet, Generally Accepted Accounting Principles, Liability Pages: 4 (1228 words) Published: March 11, 2011
Kyle Zerbe

When, where, why, and how the Business pro forma is used will be discussed in this paper. The purpose of a business pro forma and components (income statement, balance sheet, statement of cash-flows) will also be included. The roll and purpose of an executive summary will be discussed as well. The word pro forma is a Latin term meaning “as a matter of form”. Looking at its meaning in business, financial statements are a main focus. Business pro formas are prepared in advance of a planned transaction. The pro forma statement illustrates projected earnings if a company were to sell off parts of its operation, merge with another company, or beginning a new venture. When a performance statement is used a company is able to get a broad view of the future level of receivables, payables, inventory and other corporate accounts such as anticipated profits and borrowing requirements. The pro forma statements have a process of presenting financial projections for a specific time period. There are standard formats that are followed when constructing a pro forma, the American Institute of Certified Public Accountants (AICPA) and the Securities and Exchange Commission (SEC) require standard formats for business when preparing a pro forma statement. Business pro formas are used for many different reasons. When developing a business plan it is essential for management to review pro forma financial statements to help make decisions in planning and control of the new business. Management will often use the pro forma statement to compare and contrast alternative business plans. Pro forma statements allow management to do a number of different things. Managers get a projected view of financial and operating characteristics. Also develop the various sales and budget projections, assemble the results in profit and loss projections, and translate this data into cash-flow projections. This allows management to make educated decisions in research and development,...
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