Definition of Pro Forma Financial Statements

Pro forma financial statements are financial statements that are prepared on the basis of assumptions. For example, a forecast is a pro forma financial statement. Similarly, a budget for the next month or quarter is a pro forma financial statement.

In the case of financial statements like balance sheet, profit and loss statement, cash flow statement, etc, that management may produce based on assumptions to convince a bank for a loan. For this, the management can extrapolate the to-date figures over the remainder of the accounting period. For example, the profit for nine months income statement is $300,000, which means if assumptions support even distribution of revenues and expenses throughout the financial year, the pro forma income statement for full-year will report a profit of $400,000.