Are Pro Forma Statements part of financial analysis?
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Proforma financial statements should be the companies best estimates on how the company will perform in future periods. They should be part of the overall analytical process, but should not be the only information that the someone would base their decision.
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Solution Summary
In a 363 word solution, the reponse carefully explains several uses for pro-forma statements including other reports which should be prepared as part of the package of forecasted data.
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Pro-forma financial statements can be an effective tool for management because the format will synthesize the thoughts and plans of upper management as well as middle management, department heads and others. In that regard, it is a participatory exercise that can then be used for accountability of managers. Variance analysis later can be very helpful for management to understand what went wrong as well as what went right.
First it forces the managers to carefully plan ahead beginning with a sales forecast and ending with expected expenses. Once planned, the pro-forma statement ...
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