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Pro forma financial statements are projected financial statements based on certain assumptions, indexations and projections. These statements enable the company/organization/investors etc, to make informed financial decisions.
Most of accounting textbooks are defined "Pro-forma Financial Statement" as:
Hypothetical scenario that has not yet been realized or approved that represents a modification of the actual financial statement, which may be useful for showing what a proposed company would look like or for removing unusual or non-recurring from the final financial statement.
Pro forma Financial Statements are which prepared inorder to identify external financial needed witha given sales growth. It contains pro forma income statement, balance sheet and cash flow statement.
Similar to the "Pro Forma Invoice", which is a blueprint of the final invoice and intended to show the client how his final invoice is going to look like, in terms of items, quantities, unit and total price;
A "Pro Forma Financial Statement" is a blueprint of a variety of financial statements that are prepared in advance to show the management (and/or investors, and/or any other interested party), the impact of various scenarios on the final financial statements (Normally P&L Statement and B/Sheet).
A good example of this could be the following:
A corporation may desire to see (in advance) the effects of two (or more) possible financing options from various sources, so a "Projected Balance Sheet" is prepared along with its relative "Income Statement", as well as a "Statement of Cash Flows" for each of the prospected financing options.
These projected financial statements are normally referred to as the "Pro Forma Financial Statements", based on which results, the corporation may then select the most convenient and/or most profitable financing option.
Mind you that the "Pro Forma Financial Statement" can be also prepared for various similar purposes or reasons, similar to a prospected change of purchase and/or selling prices of a determined fixed figure of production and/or sales... etc
A pro forma statement is a financial statement based on assumptions and projections.
