Question

What role do revenue and expense assumptions play in the development of pro forma statements

Answer 1

Pro forma statements are projected statements by the entity regarding the performance of entity in the future and revenues and expenses assumptions play an important role in development of the pro forma income statement because pro-forma income statement will be determining the overall level of profitability of the company after determination of the revenues and the expenditure associated with it.

Revenues and expenditure assumptions are also important because it will be providing with an idea of the expected top line of the company and it will also provide an idea about the headwinds and tailwinds of the company future operations so generally revenues and expenditures are providing with the broad timeline of the company's profitability in the future so revenues and expenditures assumptions are highly important in order to determine the performance of the company in the short-term and it will provide an idea about projected growth rate in the short-term about the expenditure and the income of the company so it will help the prospective investors to make a decision after undertaking the current performance of the company in terms of revenue generations and profitability generation and hence it can be said that revenue and expenditure are playing at most important role when it comes to generation of income proforma statement.