课程: Forecasting Using Financial Statements

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Cash flows vs. pro forma statements

Cash flows vs. pro forma statements

课程: Forecasting Using Financial Statements

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Cash flows vs. pro forma statements

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- How are cash flows different than pro forma statements? Well, net income from the pro forma statement provides information on profit earned during the period, rather than the cash that's generated. If a business sells a product to a customer, it recognizes the revenue and the good is transferred even if the payment won't be received until 30 days later. Cash flow on the other hand, provides an indication of how much actual cash is generated, and hence available to be paid out to investors in the business, or to invest in new projects. So, free cash flow projections are generally thought of as a bit more solid than pro forma statements. So what exactly does free cash flow indicate? Well, if it's growing, then that means that there are going to be increased earnings. Investors will be rewarded more quickly. Conversely, insufficient free cash flows for earnings growth, can quickly increase the amount of liabilities. Paired with low liquid, this can amount to disaster for the business…

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