Pro Forma Cash Flow Statement

A pro forma cash flow is a statement which predicts the rate at which money will flow into and out of a company in the future.

Pro forma cash flow statement. It also plays an important role in new business startups or smes in the planning stage as they provide a possible. Creating a pro forma cash flow statement. Pro forma cash flow statements are business documents prepared to give investors an idea of what a company s average cash flow may look like during a given period. The income statement is probably the most commonly pro forma ed financial statement because management investors and creditors all want to see what happens to profits if certain business deals take place in the future.

The cash flow statement or statement of cash flows summarizes a company s inflow and outflow of cash meaning where a business s money came from cash receipts and where it went cash paid by cash we mean both physical currency and money in a checking account. This information may be developed as part of the annual budgeting or forecasting process or it may be created as part of a specific request for cash flow information as may be required by a prospective lender or investor. Pro forma a latin term literally means for the sake of form or as a matter of form in the world of investing pro forma refers to a method by which financial results are calculated. Pro forma cash flow statement can be developed as part of the annual budgeting or forecasting process or it may be created as part of a specific request for cash flow information as required by prospective investors or company management for future decision making.

Pro forma cash flow information is useful for estimating. That means taking info from the income statement then using the cash flow statement format to plot out where your money is going and what you ll have on hand at any one time. For example management might anticipate closing a. Pro forma cash flow is the estimated amount of cash inflows and outflows expected in one or more future periods.

To create a pro forma cash flow you need to know your current cash position. You create a pro forma cash flow statement much the same way you d create a normal cash flow statement. Pro forma income statement. How are cash flows different than pro forma statements well net income from the pro forma statement provides information on profit earned during the period rather than the cash that s generated if a business sells a product to a customer it recognizes the revenue and the good is transferred even if the payment won t be received until 30 days later cash flow on the.

Pro forma cash flows predict inflow and outflow of cash to your business. This can give the company s management some insight into whether they are likely to have to make temporary arrangements such as borrowing to cover a cash flow shortage. To demonstrate the steps of building a pro forma cash flow let s use a hypothetical company west coast shoe wholesalers inc. Pro forma is latin meaning as a matter of form.

West coast shoe is beginning the year with 90 000 in its checking account.