Pro forma financial information is intended to assist you and other interested parties (investors,banks, lessors,buyers,sellers,etc.) in understanding the effects of a proposed transaction. Although these types of future or hypothetical transactions may appear prospective in nature, pro forma financial statements are basically a recast of historical financial statements.
The purpose of pro forma financial information is to show what the effects on historical financial information might have been, had a consummated or proposed transaction or event occurred at an earlier date. Pro forma financial information is usually presented by showing certain pro forma adjustments, in columnar spreadsheet, which are based on the assumptions of management, to amounts in the historical financial statements.
Some examples of pro forma financials are as follows:
- Purchase and sale of a business
- Application of proceeds from proposed borrowings,investor capital, sales of securities,etc.
- Changes in capitalization
- Other events occurring subsequent to the date of the historical financial statements
