A pro forma analysis is an analytical projection of the potential financial position of a company based on a review of historical information, operating metrics, and potential cost savings due to anticipated changes. Pro forma analysis is typically performed in conjunction with a financial review. A pro forma analysis is one of the main decision-making tools companies use when reviewing potential large-scale company changes, potential purchases, mergers or acquisitions.

Function

A pro forma analysis functions as an analytical tool for company executives to make complicated and financially impacting decisions. It can also be used as justification for the financial cost of major decisions such as a purchasing another company or implementing a new data management system.

Preliminary Steps

Prior to completing a pro forma analysis, an analyst will compile a thorough financial review to ensure accurate and up-to-date information. This financial review will provide the data necessary for the analyst to compile a pro forma analysis.

Sections

Pro forma analysis typically includes sections that forecast operating expenses, forecasts any changes in total assets, changes in total equities and analyzes the cost of financing versus the long-term financial reward (or loss) of the proposed change. A pro forma analysis concludes with forecast income statements and forecast balance sheets that incorporates changes in taxes and interest.

Assumptions

Analysts assume limited changes other than the proposed change will occur in the company, economy at large and in the legal and legislative system. These assumptions are necessary to isolate the impact of the proposed changes.

Outcome

The outcome of a pro forma analysis is a comprehensive document that provides an analyst's best-educated prediction as to the financial impact of a proposed change. This document will outline all assumptions and data used to calculate the financial forecast.