A proforma is a document that outlines the expected financial performance of a business or project in the future. It is typically used to provide estimates of revenue, expenses, and profits over a specific period of time. A proforma is not a real financial statement, but rather a projection of what the financials might look like under certain assumptions.
Proformas are often used by businesses to make financial plans, secure financing, or evaluate potential investments. They can also be used by individuals to create a budget or plan for their personal finances.
Important components of a good proforma include a forecasted income statement, balance sheet, and cash flow statement. An income statement, also known as a profit and loss statement, shows the revenues and expenses of a business over a specific period of time, and calculates the net profit or loss. A balance sheet shows the financial position of a business at a specific point in time, by listing its assets, liabilities, and equity. A cash flow statement shows the flow of cash in and out of a business, including the sources and uses of cash.
Proformas are created using various assumptions about future events, such as sales volumes, costs, and prices. These assumptions can be based on historical data, industry trends, or the business's own expectations for the future. It is important to note that proformas are not guaranteed to be accurate, as they are based on estimates and assumptions that may or may not come to fruition.
Proformas can be useful tools for businesses and individuals to plan and make decisions about their finances. However, it is important to be aware of the limitations of proformas and to use them in combination with other financial information and analysis.