MA 3 Budgeting and Pro Forma Statements

Question 1

Define pro forma financial statements

Answer 1

A complete set of FS that capture a change or event to give decision makers an idea of what the company’s financial position will look like if the change or event occurs

Question 2

Budget vs forecasts vs pro forma statements

Answer 2

Budgets - prospective FS that take into account assumptions required to achieve targets based upon committed capital investments
Forecasts - prospective FS that provide info on the direction and results that company is likely to achieve and updated with current information
Pro forma - use budgeted statements then factor in a specific change or event to show impact on prospective statements

Question 3

Uses of pro forma statemetns

Answer 3

• assessing impact of changes
• business planning
• financial modeling
• extermal reporting for investors or creditors
• determining external financing required

Question 4

limitations for pro formas

Answer 4

complicated

challenging to get accurate assumptions