How to Create Pro Forma Financial Statements in Excel

They help assess potential financial outcomes and guide decision-making. Another, critical use case of pro forma financial statements is risk analysis. You might take a financial statement, and move around certain variables.

Financing or Investment Pro Forma Projections

Pro forma analyses are meant to paint a better picture of what is happening with the company, irrespective of one-time events, but considering the specific industry’s standards. In some respects, this type of analysis is a more accurate depiction of the company’s financial health and outlook. Further, organizations may want to develop their pro forma financial statements while they are doing an annual review of their business plan. A pro forma income statement projects your business’s revenue, expenses, and profits over a set period.

Example 1 – Creating Pro Forma Income Statement

Smartsheet provides a better way to unify collaboration and automate workflows so you can spend more time on the work that matters. Feeling inundated with too many spreadsheets, repetitive data entry, and version-control issues? So, you’re working with data in Excel, and you’ve heard about this magical number called R2, or the coefficient of determination. It sounds fancy, but what does it really mean, and why should you care? R2 is a statistic that gives you a sense of how well your data fits a regression model.

For example, let’s say your business has an income this year of $100,000. Based on your pro forma annual income statement, next year’s income will be $107,000. When you are putting together the budget for next year, you can factor in that $7,000 difference. There are other stable variables that aren’t influenced by sales on the income statement, including operating expenses, depreciation and amortization, and interest expense. The COGS figure does directly vary with sales; if it does not, something is wrong with your numbers. The COGS forecast is the COGS/Sales ratio from several years multiplied by the sales forecast.

• By drawing on info from the income statement and the cash flow statement, you can create pro forma balance sheets.
• If you’re looking to streamline this process even further, consider using Bricks.
• When you are putting together the budget for next year, you can factor in that $7,000 difference.
• Publicly traded companies must use GAAP statements for official reporting to investors, regulators, and tax authorities, as required by law.

Instead, it’s a bill of sale that records the goods being sold and their estimated price, often used in international transactions. It’s also illegal to mislead potential investors with overinflated pro forma projections. Excel offers the ability to interact with complex models and calculate the how to build a proforma financial outcomes of various investments. In addition, Excel allows users to quickly test different assumptions in the financial model and to make adjustments as needed.

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Sync data, gain insights, and analyze performance right in Excel, Google Sheets, or the Cube platform. Accracy is not a public accounting firm and does not provide services that would require a license to practice public accountancy. Construction accounting can be particularly complex, especially if you’re trying to handle it on your own.

Make sure that you set up formulas and data validation in cells to logical outcomes. For example, if you are entering dates in a specific column, you can use data validation to ensure that only valid dates are allowed and to generate an error message if incorrect dates are entered. It is also important to make sure that there are no blank cells in the model, as these can cause problems with formula calculations later on. As a business partner, he helps his clients get a holistic view of their financial health by slowing down to talk about numbers. Then, he breaks down even complex problems into one or two elements to help them break through their barriers of growth. Use this Word template to create your own compilation report, as per the AICPA’s guidance.

Some plants need constant attention (fixed costs), while others may only need seasonal care (variable costs).

In this article, we’ll cover everything you need to know about creating a proforma in Excel. From understanding what a proforma is to setting up your spreadsheet and populating it with data, we’ll walk you through each step. By the end, you’ll have a solid grasp on how to use Excel to project financial data, and maybe even a few tricks up your sleeve to make the process smoother. The balance sheet will project changes in your business accounts over time. Looking at both best case and worst case scenarios helps you make financial decisions based on challenges you may face in the future.

• You can use this scenario as a model of what may happen in the future if you buy the other business and restructure now.
• Keep in mind pro forma statements do not usually include one-time costs such as restructuring costs.
• Further, if a company has a stable order backlog, the pro forma statement of cash flow is more accurate.
• Reviewing and refining your proforma is an important step to ensure accuracy and relevance.
• This figure is like the pot of gold at the end of the rainbow, showing you what’s left after covering the direct costs of your products or services.
• The purpose of the financial forecast will impact which one you choose.

You’ve done a lot of hard work to get to this point, but the process isn’t quite finished. Reviewing and refining your proforma is an important step to ensure accuracy and relevance. After all, your initial assumptions and projections might not hold up under scrutiny. If you’re running a business, this could include product sales, service fees, or any other income streams. For personal finances, you might include your salary, rental income, or freelance earnings.

How to Develop a Pro Forma Model in Excel

It also enables companies to compare multiple future scenarios; yes, it acts as a strategic planning and risk analysis tool. By projecting outcomes for different strategies, such as expanding operations or cutting costs, businesses can identify the most viable path forward. For example, a manufacturer might use projections to decide whether to invest in new equipment or outsource production, weighing cash flow implications. As the name suggests, this pro forma projection considers the previous financial statements of your company in addition to the past financial statements of a company that you are hoping to purchase.

Pro forma cash flow statement

Just as a hiker uses a map to decide whether to cross a river at its narrowest point or take a bridge, you use your pro forma financial statement to navigate through business decisions. Make sure to use realistic market assumptions to write an accurate pro forma statement. Research and speak to experts to determine what a normal annual revenue stream is, as well as cash flow and asset accumulation.

Misleading or overly positive pro forma financial projections are considered a form of fraud by the SEC. Subtract your COGS from your projected revenues to find your gross margin. This figure is like the pot of gold at the end of the rainbow, showing you what’s left after covering the direct costs of your products or services. It’s a crucial indicator of your business’s financial health and efficiency. Based on a pro forma’s assumptions, users have the ability to model different scenarios which are used to evaluate the performance of a business under varying economic conditions.

Accelerate your planning cycle time and budgeting process to be prepared for what’s next. Make informed decisions, predict future trends, and drive your business forward with speed and confidence. The template calculates Net Cash Flow by subtracting Total Cash Outflow from Total Cash Inflow for each period, then updates the Cash Balance accordingly. This is essential for monitoring liquidity and ensuring the business can sustain operations without running into cash shortages. Before compiling this information into your pro forma model, make sure you are gathering information from reputable sources.

Individuals can use them too, especially for personal financial planning. Whether you’re buying a new home or planning a big vacation, a proforma can help you budget your expenses and better understand your financial position. Always compare pro forma numbers with standard GAAP financial statements, which must follow strict accounting rules.

Pro Forma Income Statement

When working with Excel, one of the most common tasks is summing up numbers. But what happens when you only want to sum the filtered (or visible) cells in a dataset? It’s a bit of a puzzle, but the good news is that Excel has some handy tools to solve it. Whether you’re crunching numbers for a small project or handling larger data sets, understanding how to sum only the visible cells can be a game-changer. It gives you a clear indication of whether you’re on track to meet your financial goals or if adjustments are needed.