Learning objective of Pro forma
As per the required situation, pro forma balance sheets are prepared.
Main objective of Pro forma
Pro forma balance sheets are mainly utilized for summing up the status ofa company based on the planned future transactions. Apart from this, this balance sheet is prepared taking the help of present financial statement.
Key points in this case
Simple explanation with examples
It is usually the finance department of a company which prepares the pro forma financial statement. Only after observing and reviewing the complete financial condition of a company the approach is taken.Its preparation mainly affects the materialistic transactions of a company and is based on board and management reviews. Therefore, it can be clearly seen that a business plan followed by a company and reflecting the presumed effect with the help of pro forma financial statements will show its practical financial approach.
With the help of such statements, investors and lenders can confirm or structurize their agreements with debt covenants. Among the debt covenants, 2 are mostly considered.
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