To
talk about pro foma balance sheets in the context of
strategic planning, it is first necessary to understand strategic
planning. Note that strategic planning examines a company's present
to measure it against its past so to plan for its future while a pro
forma balance sheet projects a company's accounting into the future based on
hypothetical "as if" assumptions about the company's activity.
Strategic planning is planning a company does to move to a
new set of objectives and goals; to renew or update its vision for itself and its values for its
conduct in the marketplace and in the world; to evaluate performance compared to expectation as
established in the original company business plan.
Pro forma balance sheets
provide information about future asset management and about projected financial soundness,
especially by highlighting debt-to-equity ratios. Pro forma balance sheets include current and
long-term assets as well as current and long-term liabilities.
An
advantage to using a pro forma balance sheet during strategic
planning relates to strategic planning identification of strengths, weakness, threats,
opportunities (through SWOT analysis) while identifying areas of needed or desired development.
A pro forma will provide for strategic planners the projected financial position to inform on
what expected resources might be used to meet development interests and needs. A
disadvantage to a pro forma balance sheet is that all information
is "best estimate" of "as if" data: estimations based on accounting as if
the company continues at status quo. It is "a projection showing a
business's financial statements after the completion of a planned transaction" or after
strategic planning is implemented (FinancePractitioner.com).
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