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Pro Formas-Types and Uses

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Name four pro forma financial statements and explain four ways how managers use pro forma financial statements. Which pro forma statement is easiest to develop? Why or why not. Explain.

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Four pro forma financial statements are:
1) Pro Forma Income Statement
2) Pro Forma Balance Sheet
3) Pro Forma Statement of Cash Flows
4) Pro Forma Statement of Shareholders' Equity

Though they are difficult to substantiate at times, pro forma statements are used by managers for several reasons. Managers use them to acquire capital. Whether presenting future earnings to shareholders or directly to lending institutions, managers will have to convince any potential lender that future earnings will supply the cash flow necessary to repay. From the time a business is launched, pro forma financial statements are even used in the business plan for the same purpose.

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Solution Summary

The solution names and describes the uses of four pro forma financial statements.

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