What is a pro forma adjustment?
A pro forma adjustment is used to display what the financials would look like on a hypothetical basis (i.e. “what-if”). For example, if the company switched to a new service provider, they would present pro forma financials to reflect the cost savings or the cost increase from switching to a new provider.
Pro forma financials are used by management to assess whether they should make a change to the business, and investors use pro forma financials to assess the potential of the business.
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