Pro Forma
A pro forma is a forward-looking operating model. It should expose the assumptions that make the deal work or fail.
Why it matters
pro forma changes what a disciplined buyer can pay, how much debt the asset can safely carry, and whether the return is coming from operations or fragile assumptions.
Worked example
In underwriting, tag pro forma beside the exact source input and rerun the model when that input changes. The point is not a pretty metric; it is a better buy, hold, refinance, or walk decision.
How investors read it
Start with what is contractual and collected, then normalize. A model should expose the lie, not decorate it.
Common mistakes
- · Treating the metric as a verdict instead of a screen.
- · Using broker-package assumptions without checking the source documents.
- · Ignoring taxes, capex, vacancy, financing terms, and timing.
- · Mixing actual, normalized, and projected numbers without labeling them clearly.
Use current local data and source documents. Realist should show assumptions and date-stamp market inputs because stale inputs create fake precision.