Definition and a free Pro forma balance sheet template to download

By Kishana Citadelle
Published: 11/22/21
how-to backgroundA must to understand what is a Pro forma balance sheet template

You may have heard of balance sheet, income statement, but never heard or aren’t sure of pro forma balance sheet or pro forma balance sheet template. Well, to actually release a balance sheet and choose a template, one must calculate or estimate where they stand in terms of actions to take for the company, the way they should spend according to their income, what needs to be done to increase said revenue.

That is exactly what this article will detail and speak about. In addition, we have a special bonus for you: a Pro forma balance sheet template ready to download.

What is pro forma?

Originally a Latin word, that stands for “for the sake of” or “done and produced as a matter of a form” is a process or method, where one presents their financial projections, that is to say that, after the current or estimated financial situation or data is observed, owners predict the company’s future income or expenses.

Different sequences of events can be used to see how past and future expenditures or selling might affect the financial position or profitability of your business. It usually results into a pro forma balance sheet or income statement, which are financial reports stemming from hypothetical scenarios.

It is the case of a company that budgets because it is a prediction or presumption of what expenses and revenues will look like for an accounting period.

Furthermore, this pro forma method is not used under the Generally Accepted Accounting principles (GAAP).

What is a pro forma template?

A pro forma template, equally known as a pro forma financial statement, is the foundational representation of your finances showed to investors and creditors in the hopes of retaining their attention. It aids in investors' decision-making process. And if funds were received, it help to define a business plan for the company, etc. A pro forma template is meant to show the company’s information, i.e., profits.

Of course, many types of pro forma statements or pro forma documents exist, for which templates can be used. Appvizer has created a free one for you to use and alight the task of starting from scratch. Here is the link:

Or, you have the:

  • Income statements
  • Balance sheets
  • Cash flow statements
  • Owner’s equity statements
  • Customer invoices
  • Notes to financial statements
  • Annual pro forma projections
  • Investment projections and more

Though, the 3 major ones are:

  • the pro forma income statement,
  • the pro forma balance sheet
  • the pro forma cash flow statement

And as their purpose is the same, their reasons diverge for the financial forecast, predictions. Therefore, you’ve got the:

Full-year pro forma projection

This type of projection uses the addition of projected outcomes of the rest of the year with every one of your financials for the year up until the current time you find yourself. It aids in giving an idea to investors about what your finances might look like by the end of that year.

Investment pro forma

It involves the process of looking to persuade or assure investors with the help of a pro forma financial or investment pro forma and prove to them that the business is afloat regardless of interest payments that will need to be made.

Historical pro forma

It focuses on the company’s and that of a business you wish to buy, past financial statements and shows you what your financial state would have looked like if you had acquired the company and what it could look like if you were to make that purchase now.

Risk analysis pro forma

Well, this one is basically the analysis of the risk that can happen in the future. As said, the best and worse case scenario and help the bullet. Thanks to this consideration, you can figure out other outcomes.

What is a pro forma balance sheet?

Quite identical to a historical balance sheet, a pro forma balance sheet represents projections with regard to the company future payments and budget. It is also one of 3 component of a company’s financial process.

It forecasts the money you have bound in receivables, inventory and equipment. Simply, it is to determine the overall health of the company and soundness of the owners’ mind, so that they do not over spend after all, no one wants to be in debt as taxes never forget to show up.

How do you create a pro forma balance sheet?

To manage your assets, it is essential to manage your assets so as to prevent surprises creep ups. There are many steps to take into account:

Step 1: Short-term assets

There are two items on the balance to take into account when considering the creation of a pro forma balance sheet. They are the current assets and the accounts receivable, which include any income dependent on your current income and generally paid accounts receivable bills.

For accounts receivable, you multiply the revenue by a quantity percentage in relation to the income of a given period. If the percentage found over a few of accounting periods, then, there is a link between your sales and receivables. Finally, multiply this result and future sales to discover the receivables’ projection.

For example, for Inventory, which is placed in cost of goods in the balance sheet will have to be divided by the cost of goods COGs to get the result in percentage and further multiply that percentage by future COGs to get the projection for the balance sheet.

Step 2: Long-term assets

It is the total amount of all long-term assets also known as fixed assets, which could be buildings, lands and more.

For example: If you purchase a building, its value should be the original minus current depreciation. Imagine this depreciation value was set at 39 years by the IRS. To get its true value, you’ll need to divide the original price by that of its depreciation, like 39 and multiply it by the years of usage. Then, followed by this result minus the original price, and you will get the asset value of the building.

Technically, it depends on the speed of the depreciation of the asset or not, like a land that does not really lose its value.

Step 3: Total assets

You simply take the total from your short-term asset + your long-term asset, and you have your total asset.

Step 4: Liabilities

It is the step that considers accounts payable, payroll, and any other expenses. It is basically any money that you owe and the total of them all that should be paid.

For example, you have the current liabilities. It mostly corresponds to the income statement.

The long-term liabilities, which should be a main focus, if one doesn’t possess any debt or isn’t expecting any new ones. However, if there will be any new debt, then it should be looked at.

Step 5: Final tabulations

You have to subtract your liabilities or debts from your assets, any resources you own, and this will make you aware of whether you can pursue as is or, change methods, such as reducing expenses.

To further simplify your life, an example of a constructed pro forma template can be found on Appvizer.

What is the difference between a pro forma balance sheet and a balance sheet?

The difference between a balance sheet and a pro forma balance sheet is that though, they both represent the financial state of the company, just that the balance sheet is the future projection of the regular balance sheet.

In addition, it is quite important to not only see what a company has done through, but to look ahead and see what can be done next time or better to correctly manage assets.

How is pro forma earning calculated?

It is the company’s revenue calculated detouring from the GAAP, omitting non-renewable big losses to get the true value of the company. Pro forma is the total of all your earnings divided by all shares from Pro Forma EPS.

Its formula is: Pro forma EPS = (Acquirer’s net Income + Target’s Net Income +/- “Incremental Adjustments”)/ (Acquirer’s shares + New Shares Issued)

Hopefully, now that you understand what pro forma balance sheet is, you’ll be able to manage your budget for a better company success.

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