What does pro forma actually mean?

Simple Q I know but hey better know now than wonder on exam day!

Description of financial statements that have one or more assumptions or hypothetical conditions built into the data. Often used with balance sheets and income statements.

I think of it as meaning “Projected”… as in “If these things happen, I project my net income to be this much”

It can also be used for past figures. An example from my last project at work, yes?: - company A bought company B in the middle of 2007, so A’s 2007 consolidated I/S included B’s figures for a partial year - For comparability purposes with 2008, in which B is consolidated for the full year, A’s consolidated PRO FORMA 2007 figures were produced (i.e. estimated), under the assumption that B had been consolidated for the whole year The general use of “pro forma” is “under the assumption that”.


^^^ I think I see what you mean. I thought it was obvious to everyone that the pro forma stuff I described is by no mean the audited/reported figures. It’s just an additional “analysis” if you will.

pro forma is often used to restate figures for investors when there is a one time charge or some other drastic impact to the balance sheet. In general, it uses assumption of normal business operation, etc. Unfortunately, it has also been used in the past years (Enron, Worldcom) to defraud the investors and make them believe the firm was in much better shape than it was.