Pro Forma is a Latin term which means “for form” as per Merriam-Webster which came under the application in the 1580. At that time, there were two definitions served by Pro From: first, an initial requirement for description of items or for prescriptions; second, a formality which is also known as manner of perfunctory. But here we will consider pro forms as a model which we will use to judge the hypothetical future, finance scenario to be considered in particular. Corporate finance is judged under the pro formas of a company which means discussing and organizing an approach which is standardized to handle investors and finance issues in the firm.
We can understand the same with an example where we you will asked to prepare a business plan if you wish to propose a new project or idea to the board of directors team or in fact our senior manager. In your business plan, the most essential part to be considered will be “pro formas” sense of finance which will be further used as base line in order to discuss the project in a detailed manner.
Now the question here is who is responsible to produce pro formas? Other than entrepreneurs and managers, analysts who are responsible for acquisitions of investment banking are also responsible for producing the Pro formas of the project. The pro forms developed by analysts are different from that of entrepreneur. Though the history of corporate is available for the analysts but sometimes detailed knowledge about the company along with internal tactics and intention of corporate is sometimes difficult to seek.
This chapter will help you to produce pro formas but the perspective of every pro forma is different from analyst and investor point of view. Though every pro forma will be different for different type of firm, but a basic idea will help you develop professional business plan.
Links of Previous Main Topic:-
- Introduction of corporate finance
- The time value of money and net present value
- Stock and bond valuation annuities and perpetuities
- A first encounter with capital budgeting rules
- Working with time varying rates of return
- Uncertainty default and risk
- Risk and return risk aversion in a perfect market
- Investor choice risk and reward
- The capital asset pricing model
- Market imperfections
- Perfect and efficient markets and classical and behavioral finance
- Capital budgeting applications and pitfalls
- From financial statements to economic cash flows
- Valuation comparables financial ratios
- Corporate claims
- Capital structure and capital budgeting in a perfect market
- The weighted cost of capital and adjusted present value in an imperfect market with taxes
- What matters
- Equity payouts
Links of Next Financial Accounting Topics:-
- The goal and logic
- The template
- The length of the detailed projection period
- The detailed projection phase
- The terminal value
- Some pro formas
- Alternative assumptions and sensitivity and scenario analyses
- Proposing capital structure change
- Our pro forma in hindsight
- Caution the emperors new clothes
- Chapter 20 appendix
