Week 3 - Pro Formas

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Southern New Hampshire University *

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691-Q2135

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Finance

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Apr 3, 2024

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docx

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3

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Week 3: Pro Formas 1 Pro Formas FIN 691 ProfessoBr Edward Strafaci Southern New Hampshire University Nicole Johnson October 8, 2023
Week 3: Pro Formas 2 A proforma income statement, or a proforma profit and loss, is a tool analysts and business managers use to help see how decisions will affect the bottom line. They are often used when discussing non-reoccurring spending, such as expansions, mergers, and acquisitions. They are used as a tool to show projections to see how business decisions are going to affect the outcome of the business. They use the balance of previous or historical profit and loss statements and build upon the past to project where they might end up in the future. Pro formas are just a set of projected financial statements based on a set of assumptions, including the balance sheet, income statement, and cash flow statements (Boyd, 2022). The pro formas are a great tool to take to investors to show them the snapshots of what the business is anticipating, however, they cannot accurately capture the way the economy is going to do. Pro formas are a peek into the future to help guide a new business and give them a sense of direction on where to go to help them be successful. This is also a double-edged sword because if they stay the course of the projections, they might miss out on other opportunities that the pro forma didn’t lay out or anticipate and those could be opportunities that lead to more than what is projected in the pro forma. Pro forma use has a tendency to place blinders on and businesses want to stick to the plan and they do not detour unless they absolutely have to. Overall, pro form statements are a unique tool that businesses can use to help build upon to grow into something more positive in the future of the business. They help build upon previous spending and decisions and help guide the business into something new and successful. Pro forma use can also lead to a sense of false hope so to speak. I say this because they could be missing information or not taking in account for inflation and other struggles we are facing currently.
Week 3: Pro Formas 3 References: Boyd, Ken. 2022. Pro Forma Financial Statements: How to Use Them to Make Smarter Business Decisions. Retrieved on October 8, 2023, from https://quickbooks.intuit.com/r/bookkeeping/pro-forma-financial-statements/
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