Question

What are pro forma financial statements, and what would be your concern with using historical data when it comes to changes in the economy?

Answer 1

Pro forma financial statements refer to those which are prepared based on certain assumptions and forecasts. They are build up on estimates and Expectations of the company to help assess a company's future prospects.

Generally pro forma financial statements are based upon historical data and the company's Expectations in the future periods. However when the economy is highly volatile it is a matter of concern that the estimates may be far from accurate since they would be based upon historical trends. Hence accuracy of the pro forma financial statements is the main concern while using historical data when there are many changes in the economy.