Pro Forma Income Statement

What is the Pro Forma Income Statement?

Pro Forma Income Statement (also known as pro forma profit and loss) means how the adjusted income statement will look like when certain assumptions like non-recurring items, restructuring costs etc were excluded or if a loss-making unit is discontinued. When used in the context of a business plan, it represents financial forecasts based on managers or analysts’ assumptions about the company.

Two Types of Pro Forma Income Statement

Pro forma income statement is the statement prepared by the business entity to prepare the projections of income and expenses, which they expect to have in the future by following certain assumptions such as competition level in the market, size of the market, growth rate, etc.

#1 – Pro Forma of Historical Profit and Loss Statement

Below is an example of Amazon. As we note from below, Amazon removed its non-recurring charges, including restructuring costsRestructuring CostsRestructuring Cost is the one-time expense incurred by the company in the process of reorganizing its business operations. It is done to improve the long term profitability and working efficiency. This expenditure is treated as the non-operating expenses in the financial more and stock-based compensation, to correctly represent its Net Income.

Pro forma Financial Statements Adjustments

source: Amazon SEC Filings

#2 – Pro Forma Projections of Income

Below are the Pro Forma projections of the Income Statement of Alibaba. The projection of revenues is based on many assumptions, including growth rate, competition, market size, etc.

Pro Forma Income Statement

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For eg:
Source: Pro Forma Income Statement (

Uses of Pro Forma Income Statement


  • One of the major drawbacks is that it is just a mere projection, the future of which is uncertain. The basis of any pro forma is the assumptions made. If the assumptions are inaccurate, it may lead to inaccurate planning and execution. Past data may not always help to paint the correct picture in a dynamic and ever-changing business environment.
  • Since there are no set rules while making such a pro forma, companies tend to manipulate the financial earnings. Companies can exclude anything it believes that conceals the true financial performance.
  • Some firms exclude unsold inventory of their statements, which, in a way, portrays inefficient management to produce inventory that cannot be sold.
  • It does not mean that every firm manipulates their earnings. Hence while evaluating, investors and analysts should pay attention to what is and what is not included while preparing the pro forma income statements.


Although the pro forma profit and loss statements provide a better picture, it is prudent for the investor to dip deep and analyze what is included/excluded, and why so? It also advised comparing the pro forma statements with the actual statements to get a better understanding.

This article has been a guide to what is Pro forma income statement. Here we discuss the two types of pro forma income statements along with its uses and drawbacks. You may learn more about Accounting from the following articles –

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