How to Prepare Pro Forma Statements of Cash Flows

Pro forma cash flow statements are business documents prepared to give investors an idea of what a company's average cash flow may look like during a given period. Pro forma is Latin meaning "as a matter of form"; that is, normally. pro forma cash flows statements are sometimes required by the Securities and Exchange Commission or investors if the actual financial documents of a company reflect an unusual occurence that is not expected to happen again.

Identify the unusual activity in the current year's actual cash flow statements that is non-recurring. For example, if the company sold large amounts of property resulting in a windfall profit or if the company made large investments that reduced the profit for the year, that would be unusual activity that needs to be eliminated from the pro forma cash flow statements.

Compare the cash flow statements for the last several years. Make note of any trends in sales and income or in expenses. Pay particular attention to annual expenditures and income.

Remove the unusual activity from your actual cash flow statements by subtracting the increased income or debt from the reported totals. It's usually a good idea to keep a separate descriptive narrative of items eliminated from the actual cash flow statements in compiling the pro forma statements.

Estimate what the company's income should be in a normal year or quarter. In some cases, this may be higher or lower than actual sales. To comply with the Sarbanes-Oaxley Act regarding corporate accounting, keep track of the means by which these estimates are made. Make a note regarding the forecasting data included and where that data were compiled from.

Post total income, net income, after-tax income and net expenses as well as supporting documentation in the proper format. These numbers will sometimes seem like little more than your best guess or best estimate, but pro forma statements are not intended to be statements of fact. They are statement of what a "normal" cash flow would look like.