Pro forma

What is pro forma?

Pro forma is a way of describing statements issued ahead of some financial transactions or business announcements. A Latin phrase meaning “as a matter of form,” pro-forma actions are those that uphold basic conventions in an interaction. While pro-forma actions have social importance, in business they’re an expected courtesy that helps to contextualize and facilitate a transaction.

Deeper definition

In virtually every context, pro-forma practices are considered a formality. They have applicability in a number of different circumstances, including law, government, and business. “Pro forma” may simply describe a norm or the performance of some expected action that meets the minimum requirements for a social or professional relationship between two parties.

In business, pro-forma statements report a company’s finances while offering a hypothetical outlook about its projected future. These statements are helpful for investors who may be interested in a company’s performance or to help facilitate a merger or acquisition because they indicate cash flow and net revenue. They’re also useful to banks when a company needs to apply for a loan or credit line. Generally, pro-forma statements don’t explicitly detail unusual expenses or sales.

Similar to a letter of intent, pro-forma documents are used as a kind of precursor to an invoice to express an interest in doing a transaction, such as a sales quote. In the U.S., pro-forma documents that report on a business’s earnings are governed by the Generally Accepted Accounting Principles (GAAP) of the Securities and Exchange Commission (SEC).

If you apply for a small-business administration loan, your bank might request a pro-forma financial statement. If you just need a personal loan, check out Bankrate’s comparison list.

Pro forma example

Pro-forma actions may be as simple as greeting coworkers in the morning or issuing a perfunctory announcement. They’re also used frequently by the U.S. Congress to prevent its members from adjourning for too long; as a matter of policy, no business is conducted, but a pro-forma session can prevent the president from making recess appointments or pocket-vetoing bills. Pro-forma practice in professional settings works much the same way: an action intended to set the terms of a future relationship between two parties.

Other Personal Finance Terms

Experian

Experian is one of the three major credit bureaus. Bankrate explains

Aftercare

Aftercare is care you receive after medical treatment. Bankrate explains.

Disbursement

Disbursement is a financial and accounting term. Bankrate explains what it means.

Money laundering

Money laundering is a criminal activity. Bankrate explains how it works.

More From Bankrate