Loading the player...

What is 'Pro Forma'

Pro forma is a Latin term that describes a method of calculating and presenting financial results to emphasize either current or projected figures. Pro forma literally means “for the sake of form” or “as a matter of form.” In the world of investing, pro forma refers to a method by which firms calculate financial results. This method of calculation emphasizes present or projected figures.


Financial statements that use the pro forma calculation method are often designed to draw focus to specific figures when a company issues an earnings announcement and makes it available to the public, particularly potential investors. Companies may also design these pro forma statements to indicate a proposed change, such as an acquisition or a merger.

Investors should be aware a company’s pro forma financial statements may hold figures or calculations not in compliance with Generally Accepted Accounting Principles. Sometimes, pro forma figures differ vastly from those generated within a GAAP framework as pro forma results will make adjustments to GAAP numbers to highlight important aspects of the company's operating performance.

Pro Forma in Accounting

In accounting, pro forma refers to a statement of a company’s financial doings, that excludes unusual or nonrecurring transactions, when reporting the company’s earnings. Excluded expenses typically include declining investment values, restructuring costs and adjustments made on the company’s balance sheet that fix faulty accounting practices from other years.

Pro Forma in Business

In a business sense, companies make financial statements prepared with the pro forma method ready ahead of a planned transaction such as an acquisition, merger, change in capital structure or a new capital investment. These models forecast the expected result of the transaction, with emphasis placed on estimated net revenues, cash flows and taxes. Pro forma statements, therefore, in summary, show the projected status of a company based on current financial statements.

The Popularity of Pro Forma

Pro forma results in the United States boomed in the late 1990s surrounding dot-com companies that used the method to make losses appear like profits or, at a minimum, to reveal much greater losses than indicated through U.S. GAAP accounting methods. The U.S. Securities and Exchange Commission responded by firmly requiring publicly traded companies in the country to report and make public U.S. GAAP-based financial results. The SEC also clarified that it would deem using pro forma results to lie about or grossly misconstrue GAAP-based results fraud and punishable by law if they misled investors.

  1. Like-For-Like Sales

    Like-for-like sales is an adjusted value of growth that includes ...
  2. Non-GAAP Earnings

    Non-GAAP earnings are pro forma earnings figures, adjusted to ...
  3. Underlying Profit

    An underlying profit describes an actual reflection of a company's ...
  4. Quid Pro Quo Contribution

    A quid pro quo contribution is one in which the donor receives ...
  5. Pro-Forma Earnings

    Pro-forma earnings are earnings that exclude certain costs that ...
  6. Accounting Change

    An accounting change is an accounting method considered a bigger ...
Related Articles
  1. Investing

    Microsoft Exec Says Apple Is 'Following' Surface With the iPad Pro

    A Microsoft general manager said that Apple's iPad Pro was clearly influenced by his company’s Surface products.
  2. Insights

    Has Apple Cancelled the iPhone 7 Pro? (AAPL)

    Earlier this week, Apple announced it would launch new versions of its iPhones, Apple watch and MacBook Pro on September 7. Unfortunately, there's a rumor circulating that the company may drop ...
  3. Investing

    Bass Pro Has to Be Regretting Its Cabela's Offer

    Outdoor and sporting goods retailer Bass Pro Shops made a $5.5 billion offer last month for rival Cabela's (NYSE: CAB), but after the target company reported its third-quarter results on Wednesday, ...
  4. Insights

    New Apple MacBook Pro Images Leaked Ahead of Launch (AAPL)

    First look at the new, thinner Apple MacBook Pro with Touch ID and OLED panel.
  5. Investing

    Apple Unveils New MacBook Pro And Apple TV

    Apple unveiled new devices today, including a new MacBook Pro.
  6. Investing

    DeVry Fails Its Earnings Report (DV)

    DeVry Education Group (NYSE: DV) suffered a steep fall in its stock price this week, after the for-profit educator reported full-year earnings results that fell short of expectations. Reporting ...
  7. Investing

    3 Announcements From Apple's Developer Conference

    The company is firing on all cylinders this year, and news from the conference could give it a boost.
  8. Investing

    Why Financial Statements Are Harder to Read Than Ever Before

    Understand four major reasons that financial statements published in 2016 are more complicated and difficult to read than they were in the past.
  1. What are the key differences between pro forma statements and GAAP statements?

    Learn the key differences between pro forma and GAAP statements. Review examples and cautionary notes about reliance on pro ... Read Answer >>
  2. What does 'pro bono' really mean?

    The term pro bono is short for the Latin "pro bono publico," which means "for the public good." Check out the detailed explanation ... Read Answer >>
  3. What is the pro rata condition of average on an insurance claim?

    Find out what an insurance policy means when it has a clause stating pro rata condition of average for damage claims when ... Read Answer >>
  4. What is the difference between a cash flow statement and an income statement?

    Learn how a cash flow statement measures the sources and uses of a company's cash, while an income statement measures a company's ... Read Answer >>
  5. What are the objectives of financial accounting?

    Learn about the principle objectives of financial accounting, including the furnishing of the financial statements for those ... Read Answer >>
Trading Center