Question

Pro forma forecasts are often adjusted for

A)

Transitory items that aren’t expected to have a lasting, future impact on the firm.

B)

Changes in the future operating ratios that are not reflected in past financial statements.

C)

A forecast change in firm strategy that will influence future risk and future cash flows.

D) All of the above are true of pro forma adjustments

Answer 1

Answer- option (D) All of the above

• Pro Forma forecast is the financial forecasting method based on balance sheet, income statements and cash flow statements.
• Here revenue, expenses and other transitory items are calculated as a percentage of future sales which will bring future impact on the business.
• Operating ratios like liquidity ratio, debt-equity ratio and current ratio those are not recorded in the previous financial statements are adjusted in the new statement. So that investors will get the true picture of an organisation.
• Financial strategies are taken into account which influences risk and cash flow information. As a result the investors can aware of the risk factors associated with the investment.

Hence pro forma forecasts are adjusted for all the above reasons.