Federal Nursing Home Administrator Practice Exam

What is the primary purpose of a pro forma financial statement?

1. To record historical financial data

2. To make predictions about future financial performance

3. To report current assets and liabilities

4. To document tax liabilities

The correct answer is: To make predictions about future financial performance

The primary purpose of a pro forma financial statement is to make predictions about future financial performance. These statements are typically used by businesses and organizations to project future revenues, expenses, and cash flows based on assumptions about future events and market conditions. They often incorporate hypothetical scenarios that allow stakeholders to visualize the potential financial outcomes of strategic decisions, investments, or changes in operations. Pro forma statements are useful for planning and decision-making, as they help management assess various financial strategies and their impacts. They are often utilized in the context of budgeting, forecasting, and financial analysis to provide insights that guide business development and investment opportunities.