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Pro Forma Statement, Pro Forma Invoice
Definitions and Meaning

Pro forma statements are prepared to show (preview) the shape or form of real statements coming in the future. Figures in pro forma statements are viewed as estimates that may change in the real document arriving later.

What is a pro forma statement?

A pro forma statement is a financial statement prepared as a projection of the future. It usually takes into account historic relationships, anticipated changes in these relationships, and known future financial developments. The Pro Forma designation describes the purpose of the statement: "Pro Forma" in Latin means "As a matter of form" or "For the sake of form." Pro forma documents in business are prepared to show the shape or form the final document will have

Contents

What is the purpose of pro forma statements?

A pro forma Income statement and Balance sheet might be used, for example, to help determine the necessary amount and timing of a company’s future cash requirements. Pro forma statements show the form and contents expected in the real statements, including estimated figures or projections acting as "place holders" for figures to be developed later.

Similarly, pro forma statements for a proposed company start up might be used as part of a funding request to potential investors or loan institutions, meant to show that the new company will be profitable and financially sound. When used in this way, pro forma statements are essentially the heart of the business case for funding the company. Pro forma business results and other projections in this kind of business case call for a thorough, credible risk and sensitivity analysis to show:

  • The likelihood of other outcomes besides the desired projected outcome.
  • Risk factors that could lead to undesirable outcomes
  • Contingencies and critical success factors that must be managed to target levels, in order to achieve desired outcomes.

What is a pro forma invoice?

Another form and use of pro forma statement is the pro forma invoice. A pro forma invoice is not an actual demand for payment. Vendors and services providers may submit a pro forma invoice to potential customers or clients before a purchase contract is signed, in order to show expected billing categories, estimated costs, and the classes of information that will appear on the real invoice. When used in this way, customer management may approve a purchase or sign a contract, even though the exact costs will not be known precisely until an actual invoice is received later.

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