How do you solve a pro forma income statement?
Pro forma earnings per share (EPS) are calculated by dividing a firm’s net income (and any adjustments) by its weighted shares outstanding, plus any new shares issued due to an acquisition. These are changes to the expected results of operations.
What is the first step in preparing pro forma financial statements?
The steps are:
- Calculate the estimated revenue projections for your business, a process called pro forma forecasting.
- Estimate your total liabilities and costs.
- To create the first part of your pro forma, you’ll use the revenue projections from Step 1 and the total costs found in Step 2.
- Estimate the cash flows.
What are the steps or the process of preparing an income statement?
Steps to Prepare an Income Statement
- Choose Your Reporting Period. Your reporting period is the specific timeframe the income statement covers.
- Calculate Total Revenue.
- Calculate Cost of Goods Sold (COGS)
- Calculate Gross Profit.
- Calculate Operating Expenses.
- Calculate Income.
- Calculate Interest and Taxes.
- Calculate Net Income.
How are pro forma statements constructed?
In constructing pro forma statements, a company recognizes the uniqueness and distinct financial characteristics of each proposed plan or project. Pro forma statements allow management to: Identify the assumptions about the financial and operating characteristics that generate the scenarios.
What is a pro forma income statement example?
Pro forma statements look like regular statements, except they’re based on what ifs, not real financial results. As in, “What if my business got a $50,000 loan next year?” Your pro forma statements for that scenario would show what your income, account balances, and cash flow would look like with a $50,000 loan.
What is pro forma income?
What Are Pro-Forma Earnings? Pro-forma earnings most often refer to earnings that exclude certain costs that a company believes result in a distorted picture of its true profitability. Pro-forma earnings are not in compliance with standard GAAP methods and are usually higher than those that comply with GAAP.