Pro Forma Financial Statements: What They Are, How To Create, Pros and Cons

What Does Pro Froma Mean In The Context Of Finance? 

In practice, pro forma statements model financial outcomes based on assumed events or adjustments. They’re often used to normalize earnings by excluding non-recurring items or to project future performance based on anticipated changes in the business.

For example, a pro forma income statement might adjust for a one-time restructuring charge or reflect projected revenue from an upcoming product launch. The objective is to provide clearer insight into the company’s expected financial position, without distortions from unusual or non-operational events.

Since pro forma statements aren’t based on historical data, they fall outside the scope of GAAP and can’t be used for tax filings or regulatory reporting. They must be clearly labeled as “pro forma” to differentiate them from official financial disclosures.

Different Types of Pro Forma Financial Statements

These are the three most common pro forma financial statements: pro forma income statements, pro forma balance sheets and pro forma cash flow statements.

To Create a Pro Forma Income Statement, You Need:

• Current revenue figures
• Current expense figures
• Key assumptions (company growth, competitor activity, fluctuations in the economy, etc.)

You can use this handy tool to plan the items that you will include on your income statement.

Track your revenue and expenses with this free income statement template for Excel.

To Create a Pro Forma Balance Sheet, You Need:

• Current asset figures
• Current liability figures
• Current shareholders' equity/owner's equity figures
• Key assumptions (upcoming major purchases, scheduled payments on loans, etc.)

You can use this tool below to help generate the items that will go onto your pro forma balance sheet.

Monitor your financial health with this free monthly balance sheet template for Excel.

To Create a Pro Forma Cash Flow Statement, You Need:

• Current cash position
• Key assumptions (expected cash inflows and cash outflows)

You can use this tool below to help generate the items that will go onto your pro forma cash flow statement.

Other Common Pro Forma Statements

In addition to the three core financial statements—income statement, balance sheet, and cash flow—there are several other types of pro forma statements used for planning, forecasting, and strategic decision-making. These versions help businesses evaluate potential outcomes, secure funding, or prepare for major changes.

Budget Forecasts

Pro forma budget statements estimate future revenues and expenses over a set time frame. These are typically used for internal planning, helping teams allocate resources and set performance targets. For example, a business might prepare a quarterly budget forecast to plan marketing spend based on expected seasonal demand.

Earnings Projections

These pro forma statements forecast future profit based on key assumptions about revenue growth, cost changes, or market trends. They’re often included in pitch decks or strategic planning documents. For example, a SaaS startup may build an earnings projection based on projected user growth and planned pricing adjustments.

Mergers & Acquisitions (M&A) Scenarios

Pro forma M&A statements model what the financials would look like if two companies merged or one acquired another. They can show combined revenue, expected cost savings, and changes in net income. For example, two healthcare providers considering a merger might create a pro forma income statement reflecting the consolidation of services and staff.

Loan or Investment Planning Statements

When applying for loans or seeking investment, businesses often use pro forma statements to show how the new capital would affect their financial position and growth potential. For example, a construction company applying for a loan could include a pro forma cash flow statement that models how the funds will support upcoming projects and generate future returns.

Scenario-Based Models

These are “what-if” style pro forma statements that evaluate different business outcomes based on hypothetical changes—such as launching a new product, expanding into a new market, or shifting pricing strategies. For example, a retail brand might prepare multiple pro forma income statements to compare outcomes under different pricing models.

Pros and Cons of Pro Forma Financial Statements

Pro forma financial statements can be a valuable resource for business planning and decision-making, but they also come with limitations. Here’s a breakdown of their key advantages and disadvantages:

Putting Pro Forma Statements Into Practice

Pro forma financial statements are a valuable tool for planning, forecasting, and communicating future business expectations. Whether you're modeling the impact of a new product, preparing for a loan, or assessing a potential acquisition, these forward-looking reports can help you make more informed decisions.

Just remember: their value depends on the quality of the assumptions behind them. Used carefully and transparently, pro forma financials can offer insight into what’s possible—helping you plan for growth with greater confidence.