Pro Forma Definition and Legal Meaning

On this page, you'll find the legal definition and meaning of Pro Forma, written in plain English, along with examples of how it is used.

What is Pro Forma?

History and Meaning of Pro Forma

The term "pro forma" comes from Latin, meaning "as a matter of form" or "for the sake of formality." In the context of business and finance, pro forma refers to financial statements that are based on certain assumptions or projections rather than actual data. These statements are often used to provide a clearer picture of a company's financial situation, taking into account factors such as potential mergers or acquisitions, changes in accounting standards, or other scenarios that may not have fully played out yet.

Pro forma statements can be helpful for investors, analysts, and other stakeholders who are trying to evaluate a company's long-term financial prospects. However, it's important to note that they are not the same as actual financial statements based on audited data. Instead, they are hypothetical scenarios that are based on assumptions and projections.

Examples of Pro Forma

1. A company might provide pro forma financial statements to potential investors in order to show how a planned acquisition would impact its financial position. These statements would include certain assumptions about the costs and revenues associated with the acquisition, as well as any potential tax implications or other factors.

2. A startup might create pro forma financial statements as part of its business plan, in order to show potential investors or lenders how it expects to grow and generate revenue over time. These statements might include assumptions about customer acquisition costs, churn rates, and other metrics related to the company's predicted growth.

3. A company might use pro forma financial statements to adjust for changes in accounting standards or other regulatory requirements. For example, if a new accounting standard requires the company to recognize certain expenses differently, it might use pro forma statements to show what its financial statements would look like if it had followed the new standard in previous periods.

Legal Terms Similar to Pro Forma

1. Hypothetical: Like pro forma statements, hypothetical scenarios are based on assumptions rather than actual data. They are often used in legal contexts to explore what might happen under different circumstances.

2. Forecast: Financial forecasts are similar to pro forma statements, but they are typically more detailed and based on more specific data. They are often used by companies to predict future revenue or earnings based on current trends and other factors.

3. Projection: A financial projection is an estimate of future financial performance based on certain assumptions or scenarios. It is similar to a pro forma statement, but may be less detailed or based on fewer assumptions.