Finance is full of jargon. Jargon can be a great shorthand communication tool for those already in the community. It can also be alienating for folks new to industry, as they try to navigate new waters. We believe in keeping it simple, as this helps enhance shared understanding all around. This is why we seek to demystify finance speak for novices trying to scale their knowledge. In this post, we will tackle: Pro Forma.

Pro forma is Latin for “as if.” Pro forma adjustments are kind of like the sports commentators who project what a team’s record would have been if a series of events had or had not happened, such as had the star player not gotten hurt and been on the disabled list for six weeks, if it had not rained at a key point during the game and caused a delay, if the match ups were different, etc. Just like sports commentators arguing the validity of these points and often disagreeing, pro forma adjustments are often debated and viewed with disagreement. If a company completed an acquisition and only six months of results are shown in the consolidated statements, all parties are likely to agree that a pro forma adjustment is necessary to show a full 12-months of earnings from the acquisition (i.e., as if the company had been acquired six months sooner). However, if the company proposes a pro forma adjustment for the incremental revenue it feels it would have made if the weather was not so inclement, that is less likely to find universal agreement that an adjustment is necessary or that the parties agree on the magnitude of the adjustment.