What is the purpose of a Pro Forma Statement?

A Pro Forma Statement serves the essential function of reflecting expected financial performance after proposed adjustments. These statements are often used in scenarios like budget planning, forecasting future profitability, or evaluating the potential impact of projects or decisions, helping decision-makers understand what the financials might look like if certain assumptions hold true.

When businesses want to evaluate the effects of different strategies or changes, they prepare Pro Forma Statements to anticipate how revenue and expenses might evolve under specific circumstances. This aids in strategic planning and helps stakeholders, including investors and management, assess the implications of various operational adjustments.

Understanding this context is crucial as it distinguishes Pro Forma Statements from actual performance records and historical summaries. They are not designed to show how the company is currently performing or to assess its liquidity specifically, which would be functions of other financial reporting methods or analyses. Instead, they focus solely on projected outcomes based on hypothetical scenarios.