Question

1st. Discuss (in detail) the difference between between th Pro Forma (income) Statement vs. the historical income statement (the actual numbers).

2nd. Based on your reading from the article, discuss how the Pro Forma forecast is created. Where do the projected sales and revenue come from?

Answer 1

Answer(1):

Pro Forma Income statement- It is prepared based on the projections. It doe not contain actual number, it contains assumptions and projections. It is made to know the future revenue and income growth of the company so that decisions can be taken. Stakeholder use proforma statements to know the future growth of company so that investors can take investment decisions.

Historical Income statement- It is the income statement that had already been prepared in the past with the help of actual past figures. Stakeholders use the historical statements for knowing the company's financial health.

Answer(2): Proforma forecast is created on the basis of historical facts and figures. Assumptions and projection are taken on the basis of company's revenue growth, market size, demand for the product, brand image of the company in the market, economic conditions, Government policies and competition etc.

Projected revenue and sales come from the historical income statement. If company is maintaining a stable growth, it calculates the future revenues/sales with the help of that growth rate, if company is expanding and expected to grow at higher rate then it can calculate the revenue accordingly.