Pro Formas : Blessing or Curse? By Blaine McCormick ([email protected]) Pro forma is a Latin term meaning “as a matter of form,” yet too often people misinterpret this phrase as meaning something closer to “as a matter of fact.” This error leads to no end of frustration and lower profitability. Pro forma documents are most useful in comparing the financial outcomes of various scenarios. They allow users to easily answer questions like, “How profitable would we be if we sold 1,650,000 units of product Baker?” or “What would happen to our leverage if we took out another $8,500,000 in long term debt?” Companies frequently use them to consider the outcomes of various decision sets and then choose their favorite course of action. If users misunderstand pro formas , however, they can quickly result in a company going to wrong direction. Here are the some basic misunderstandings people make when using pro forma statements. First,
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This note was uploaded on 03/29/2010 for the course BUS 1301 taught by Professor Mccormick during the Spring '08 term at Baylor.