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M&A Vocabulary – Understanding Experts: Pro forma financial information


In this ongoing series, a number of different M&A experts from the global offices of Rödl & Partner present an important term from the specialist language of the mergers and acquisitions world, combined with some comments on how it is used. We are not attempting to provide expert legal precision, review linguistic nuances or present an exhaustive definition, but rather to give or refresh a basic understanding of a term and provide some useful tips from our consultancy practice.

Although there is no fixed definition of pro forma financial information, it is usually understood as a set of figures that are not based solely on actual accounting data (such as the figures in the financial statements) but have been adjusted to reflect a particular assumption or scenario. Such pro forma information is presented to show underlying trends and/or to show information that can be used as a basis for comparing future developments. 

Among other things, pro forma adjustments are made to present the impact of changes made during the year on the full-year result: pro forma figures then present the performance of the business as if the new situation had already existed from the beginning of the year. They are often used, for example, when expanding a business, such as when buying a branch or a factory: pro forma adjustments represent the effect of such change on the full-year results of the business as if the acquisition had already taken place at the beginning of the year, thus providing a basis for comparison for future periods. For this, income and expenses of the new branch from the beginning of the year until the date of the acquisition are added to the values from the accounting system in which the new branch has only been recorded since the transfer of ownership. In most cases, such retroactive pro forma adjustments are made not only for the period concerned but also for the previous period(s) to enable comparing the performance of today's business over time (the so-called like-for-like basis). Other frequent like-for-like adjustments include the elimination of financial information for a discontinued product group or markets no longer served, or lost or won customers. 

In addition to such like-for-like adjustments made to reflect changes in business volumes, pro-forma adjustments may also be forward-looking. For example, pro forma adjustments are made in the case of companies whose growth strategy is to open new branches rather than to acquire existing branches. In this case, the results of such fledgling branches, which first will be low as such branches are first in the start-up phase, will be replaced with extrapolated results that correspond to the full growth stage (the so-called "run rate"), for example by using results of comparable branches that have already successfully completed the start-up phase. 

Pro forma adjustments may also be made to eliminate effects of extraordinary (i.e. non-recurring) events. In the case of many companies, the coronavirus crisis can be considered as such an extraordinary event: for example, for a fast food chain that had to close some of its branches due to the lockdown, a pro-forma adjustment might be a good option where the figures for these branches for the weeks and months affected by the lockdown (they recorded no sales but costs at the same level or only slightly lower than before) are replaced with the figures for the corresponding period of the previous year or by the figures for comparable branches which are not affected by the lockdown. Such pro forma information shows an "as if" scenario, which may provide a basis for assessing and estimating future developments better than the results significantly impaired by the lockdown that will be presented in the actual annual financial statements for 2020 (unless long-term coronavirus effects and another lockdown are expected). 

When preparing pro forma financial information, it is important to also eliminate one-time effects arising from the same event as the adjustment itself, even if such one-time effects may have occurred outside the adjustment period itself. In the example of the fast-food chain and the adjustment of the lockdown effect, such one-time effects would be, for example, lower back bills for electricity or the receipt of short-time work benefits or other state aid. 

Finally, pro-forma adjustments can also be made to eliminate one-time effects arising from changes in accounting standards or accounting choices. As with like-for-like comparisons, this involves adjusting financial information for the current and previous periods as if the new standard or the choice had always been applied.


When correctly applied, pro forma figures can help assess and compare a company's historical and future performance of a business. It is important to ensure that all pro forma adjustments are clearly marked as such and that the adjustment procedure is clearly explained. In this way, the respective addressee can see that the presented figures are not the figures disclosed in the actual annual or quarterly financial statements, and how the figures have been changed or what elbow room the preparer of the pro forma figures had.

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