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What Is Pro Forma?

• Types of Financial Statements
• Pro Forma FAQs
• Corporate Finance

Pro Forma: What It Means and How to Create Pro Forma Financial Statements

Pro forma means “for the sake of form” or “as a matter of form." When it appears in financial statements, it indicates that a method of calculating financial results using certain projections or presumptions has been used.

Pro forma financials are not computed using generally accepted accounting principles  (GAAP) and usually leave out one-time expenses that are not part of normal company operations, such as restructuring costs following a  merger .

Essentially, a pro forma financial statement can exclude anything a company believes obscures the accuracy of its financial outlook and can be a useful piece of information to help assess a company's future prospects .

Key Takeaways

• Pro forma, Latin for “as a matter of form” or “for the sake of form”, is a method of calculating financial results using certain projections or presumptions.
• Pro forma financials may not be GAAP compliant but can be issued to the public to highlight certain items for potential investors.
• They can also be used internally by management for aiding in business decisions.
• It's illegal for publicly traded companies to mislead investors with pro forma financial results that do not use the most conservative possible estimates of revenue and expense.

Investopedia / Matthew Collins

What Are the Types of Pro Forma Financial Statements?

Pro forma financial statements are projections of future expenses and revenues, based on a company's past experience and future plans.

Some standard pro format statements include the following:

Pro Forma Budget Documents

A budget anticipates the inflow of projected revenues and the outflow of funds for a defined future period, usually a  fiscal year .

A budget is based on certain assumptions about future expenses and revenues. It takes into account past expenses and revenues and factors in the costs of the company's plans for the fiscal year.

Pro Forma Company Income Statements

A pro forma income statement uses the pro forma calculation method, mainly to draw the attention of potential investors to specific numbers when a company issues its quarterly earnings announcement .

For example, a company will report its actual sales and expenses for the quarter that just passed and, in the same chart, will list its projections of these numbers for the current quarter.

In this case, the company is projecting the future, based on its knowledge of past sales and expenses and factoring in expected changes.

Pro Forma Earnings Projections

A company may present a pro forma statement to inform investors about their internal assessment of the financial outcome of a proposed change in the business.

For example, if a company is considering an acquisition or a merger, it may publish a pro format statement of the expected impact of the move on its future earnings and expenses.

Pro Forma Financial Accounting

In  financial accounting , a pro forma earnings report excludes unusual or nonrecurring transactions.

These excluded expenses could include declining investment values, restructuring costs, and adjustments made on the company’s balance sheet that fix accounting errors from prior years.

Pro Forma Managerial Accounting

Accountants prepare financial statements in the pro forma method ahead of a proposed transaction such as an acquisition, merger, a change in a company's capital structure , or new capital investment.

These are models that forecast the expected result of the proposed transaction. They focus on estimated net revenues, cash flows, and taxes.

The statements are presented to the company's management to help it make a decision on a proposed action based on its potential benefits and costs.

Limitations of Pro Forma Statements

Investors should be aware that a company’s pro forma financial statements can hold figures or calculations that do not comply with generally accepted accounting principles (GAAP), the set of standards followed by public companies for their financial statements.

In fact, they can differ vastly. Pro forma results may contain adjustments to GAAP numbers in order to highlight important aspects of the company's operating performance.

Pro forma financials in the United States boomed in the late 1990s when dot-com companies used the method to make losses appear like profits or, at a minimum, to reveal much greater gains than indicated through U.S. GAAP accounting methods.

The U.S. Securities and Exchange Commission  (SEC) responded by  cautioning that publicly traded companies  report and make public U.S. GAAP-based financial results as well. The SEC also clarified that it would deem using pro forma results to grossly misconstrue GAAP-based results and mislead investors fraudulent and punishable by law.

Using pro forma results to grossly misconstrue GAAP-based results and mislead investors is deemed by the U.S. Securities and Exchange Commission (SEC) to be fraudulent and punishable by law.

How to Create a Pro Forma Statement

Basic templates for creating pro forma statements can be found online, or they can be created using a Microsoft Excel spreadsheet to automatically populate and calculate the correct entries based on your inputs.

You can also create a pro format financial statement by hand. The steps are:

• Calculate the estimated revenue projections for your business. This process is called pro forma forecasting. Use realistic market assumptions. Do your research and speak with experts and accountants to determine what a normal annual revenue stream is, as well as asset accumulation assumptions. Your estimates should be on the conservative side.
• Estimate your total liabilities and costs. Liabilities include loans and  lines of credit . Costs include lease payments, utilities, employee pay, insurance, licenses, permits, materials, and taxes. Keep your estimates realistic.
• Use the revenue projections from Step 1 and the total costs found in Step 2 to create the first part of your pro format, This part will project your future  net income  (NI).
• Estimate cash flows . This part of the pro forma statement will identify the net effect on cash if the proposed business change is implemented. Cash flow differs from NI because, under  accrual accounting , certain revenues and expenses are recognized prior to or after cash changes hands.

Here’s a historical example of a pro forma income statement, courtesy of Tesla Inc.'s (TSLA) unaudited pro forma condensed and consolidated income statement for the year ended Dec. 31, 2016.

What Is a Pro Forma Financial Statement?

Pro forma financial statements incorporate hypothetical numbers or estimates. They are built into the data to give a picture of a company's profits if certain nonrecurring items are excluded.

These are often intended to be preliminary or illustrative financials that do not follow standard accounting practices. Companies use their own discretion in calculating pro forma earnings, including or excluding items depending on what they feel reflects the company's true performance or future performance.

As pro forma forecasts are hypothetical in nature, they can deviate from actual results, sometimes significantly.

What's the Difference Between Pro Forma and GAAP Financials?

There are no universal rules that companies must follow when reporting pro forma earnings. This is why it is important for investors to distinguish between pro forma earnings and those reported using generally accepted accounting principles (GAAP).

GAAP enforces strict guidelines when companies report earnings, while pro forma figures are better thought of as hypothetical earnings.

For this reason, investors must examine not only the pro forma earnings, but also GAAP earnings, and never mistake one for the other.

What Is a Pro Forma Invoice?

A pro forma invoice is a preliminary  bill of sale  sent to a buyer in advance of a shipment or delivery of goods. The invoice will typically describe the purchased items and other important information, such as the shipping weight and transport charges.

A pro forma invoice requires only enough information to allow customs officials to determine the duties needed from a general examination of the included goods.

Can You Compare Pro Forma Statements From Different Companies?

Maybe, but it is not advised. Companies' definitions of pro forma vary along with their internal methods for forecasting and making assumptions.

If you don't know how each of the companies defines its pro forma figures, you may be comparing apples to oranges. 

U.S. Securities and Exchange Commission. " ACTION: Cautionary Advice Regarding the Use of "Pro Forma" Financial Information in Earnings Releases ."

U.S. Securities and Exchange Commission. " Tesla, Inc. Form 10-K ."

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Pro Forma Financial Statements (with Templates and Examples)

Bryce Warnes

Reviewed by

Janet Berry-Johnson, CPA

April 21, 2022

This article is Tax Professional approved

Pro forma definition

According to Merriam-Webster , “pro forma” means:

• Made or carried out in a perfunctory manner or as a formality
• Based on financial assumptions or projections

I am the text that will be copied.

Pro forma is actually a Latin term meaning “for form” (or today we might say “for the sake of form, as a matter of form”).

When it comes to accounting, pro forma statements are financial reports for your business based on hypothetical scenarios. They’re a way for you to test out situations you think may happen in the future to help you make business decisions.

There are three major pro forma statements:

• Pro forma income statements
• Pro forma balance sheets
• Pro forma cash flow statements

Pro forma statements look like regular statements, except they’re based on what ifs, not real financial results. As in, “What if my business got a $50,000 loan next year?” Your pro forma statements for that scenario would show what your income, account balances, and cash flow would look like with a $50,000 loan.

Since pro forma statements deal with potential outcomes, they’re not considered GAAP compliant . This is because GAAP compliant reports must be based on historical information.

Pro forma statements don’t need to meet the strictest accounting standards , but must be clearly marked as “pro forma” and can’t be used for things like filing taxes. Using pro forma statements that aren’t marked as such to misrepresent your business to investors, the IRS, or financial institutions can be penalized by the Securities and Exchange Commission).

However, pro forma statements are still extremely useful. They can help you make a business plan, create a financial forecast, and even get funding from potential investors or lenders.

Different but related: you can send clients pro forma invoices to let them know how much their order would be if they placed it today.

Why create pro forma statements?

Creating pro forma statements for future scenarios can help you:

• Get financed, by showing lenders or investors how you would use their money to sustainably grow your business.
• Plan for the future, by considering best, worst, and most likely case scenarios in detail.
• Anticipate changes that may affect your business as it grows, such as entering a new tax bracket.

For these purposes, pro forma statements are typically created as a part of a financial forecast in financial accounting. Big corporations who have in-house accountants use pro forma statements for financial modeling and forecasting different scenarios.

Pro forma statements vs. budgets

It may be tempting to think of a pro forma statement as the same as a business budget . After all, you create both in anticipation of the future. And both help you plan how you’ll use your money. But budgets and pro forma statements are two distinct financial tools.

Think of it this way: A pro forma statement is a prediction, and a budget is a plan. Your budget may be based on the financial information of your pro forma statements—after all, it makes sense to make plans based on your predictions.

For example: Your income this year is $37,000. According to your pro forma annual income statement, your financial projections show it will be $44,000 next year. So, when you create next year’s budget, you can include that extra $7,000—maybe spending $4,000 over the course of the year to pay down the principal on a loan , while adding $3,000 to savings.

Types of pro forma statement

There are four main types of pro forma statements. While they all fall into the same categories—income statement, balance sheet, and cash flow statement—they differ based on the purpose of the financial forecast.

1. Full-year pro forma projection

This type of pro forma projection takes into account all of your financials for the fiscal year up until the present time, then adds projected outcomes for the remainder of the year. That can help you show investors or partners what business finances could look like by the end of the fiscal year.

2. Financing or investment pro forma projection

You may be courting investors or trying to convince your business partners of the value of a capital investment or additional financing. In that case, you can use a financing pro forma projection to make your case. It takes into account an injection of cash from an outside source—plus any interest payments you may need to make—and shows how it will affect your business’s financial position.

3. Historical with acquisition pro forma projection

This type of pro forma projection looks at the past financial statements of your business, plus the past financial statements of a business you want to buy . Then it merges them to show what your financials would have looked like if you made a business combination (or merger) earlier. You can use this scenario as a model of what may happen in the future if you buy the other business and restructure now.

4. Risk analysis pro forma projection

Looking at both best case and worst case scenarios helps you make financial decisions based on challenges you may face in the future. For instance, what happens if your main vendor raises their prices like they did last year? Or how will that proposed transaction of buying new equipment impact you long term? Risk analysis lets you take the future for a test ride, and try out different outcomes.

Pro forma templates

To create a pro forma statement, you can use the same template you’d use for a normal financial statement. You may want to use Bench’s free templates:

• Income statement
• Balance sheet
• Cash flow statement

How to create pro forma statements

The sample pro forma statements below may look different from the statements you create, depending on what your template looks like. But generally, these are the steps you need to take to create them—and the info your pro forma statements should include.

Creating a pro forma income statement

There are five steps to creating a pro forma income statement:

• Set a goal for sales in the period you’re looking at. Let’s say you want to increase your income by $18,000 over the course of one year.
• Set a production schedule that will let you reach your goal, and map it out over the time period you’re covering. In this case, you’ll want to earn an additional $1,500 income every month, for 12 months.
• Plan how you’ll match your production schedule. You could do this by growing your number of sales a fixed amount every month, or gradually increasing the amount of sales you make per month. It’s up to you—trust your experience as a business owner.
• It’s time for the “loss” part of “ Profit and Loss .” Calculate the cost of goods sold for each month in your projection. Then, deduct it from your sales. Deduct any other operating expenses you have, as well.
• Prepare your pro forma income statement using data you’ve compiled in the prior four steps.

One note: your pro forma statements will be much more accurate if your bookkeeping is up to date. That way, when you project future periods, you’re basing it off the reality of your business today.

How Bench can help

To predict the future, you first need to understand the past. With Bench, you get a crystal clear image of your financial history so you can focus on planning your future. We’re America’s largest bookkeeping service helping thousands of business owners better understand the financial health of their operations so they can keep focused on growth and planning. When it comes time to create a pro forma statement, you have reliable numbers and reports to get started. We may not be a crystal ball, but we’re the next best thing. Learn more .

Example pro forma income statement:

Rosalia’s Reliable Recordings

Creating a pro forma cash flow statement

You create a pro forma cash flow statement much the same way you’d create a normal cash flow statement. That means taking info from the income statement, then using the cash flow statement format to plot out where your money is going, and what you’ll have on hand at any one time. This pro forma statement can be part of a larger cash flow forecast used for decision making.

Your projected cash flow can give you a few different insights. If it’s negative, it means you won’t have enough cash on-hand to run your business, according to your current trajectory. You’ll have to make plans to borrow money and pay it off.

On the other hand, if net cash flow is positive, you can plan on having enough extra cash on hand to pay off loans, or save for a big investment.

Example pro forma cash flow statement

Mickie’s Murakami Museum

Creating a pro forma balance sheet

By drawing on info from the income statement and the cash flow statement, you can create pro forma balance sheets. However, you’ll also need previous balance sheets to make this useful—so you can see how your business got from “Balance A” to “Balance B.”

The balance sheet will project changes in your business accounts over time. So you can plan where to move money, when.

Example pro forma balance sheet

Daily Dumpling Deliveries

Once you’ve created your pro forma income statements, and cast your eyes forward to the future of your business, you can start planning how you’ll spend your money. It’s time to create a small business budget .

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What Are Pro Forma Financial Statements?

• 28 Oct 2021

When it comes to making business decisions, so much relies on numbers. To get sign-off from key stakeholders, win investors, and strategically plan, you need to demonstrate that your ideas make financial sense.

While certain financial statements —such as balance sheets, income statements, cash flow statements, and annual reports—help provide a historical snapshot of a business’s performance, they often lack the ability to provide foresight when planning for the future. For this reason, professionals typically turn to forecasts and financial projections to guide their plans and answer critical “what if” questions. Pro forma financial statements are a common type of forecast that can be useful in these situations.

Here’s a closer look at what pro forma financial statements are, how they’re created, and why they’re a key aspect of financial decision-making.

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What Is a Pro Forma Financial Statement?

A pro forma financial statement leverages hypothetical data or assumptions about future values to project performance over a period that hasn’t yet occurred.

In the online course Financial Accounting , pro forma financial statements are defined as “financial statements forecasted for future periods. They may also be referred to as a financial forecast or financial projection.”

The course notes that these projections can be used “as a depiction of what the financial statements for the business will look like over a certain period of time, if the assumptions made when preparing them hold true.”

Since the term “pro forma” refers to projections or forecasts, it can apply to a variety of financial statements, including:

• Income statements
• Balance sheets
• Cash flow statements

Whether you’re trying to interpret pro forma financial statements or prepare them, these projections can be useful in guiding important business decisions. In fact, business owners, investors, creditors, and other key decision-makers all use pro forma financial statements to measure the potential impact of business decisions.

How Are Pro Forma Financial Statements Used?

Traditionally, financial statement analysis is used to better understand a company’s performance over a specified period. While this provides insight into a company’s historical health, creating pro forma financial statements focuses on its future. For this reason, these reports can be leveraged in several ways, including analyzing risk, projecting investments, and showing expected results before the end of a reporting period.

One of the most important uses of pro forma reports is related to decision-making and strategic planning efforts. For example, you might create pro forma financial statements to reflect the outcomes of three investment scenarios for your business. Doing so can allow you to conduct a side-by-side comparison of possible outcomes to determine which is favorable and guide your planning process.

Creating Pro Forma Financial Statements

Keep in mind that the general process of creating pro forma financial statements isn’t significantly different from that of creating traditional statements. The difference lies in the assumptions and adjustments made about various inputs, while the format and calculations remain the same.

There are, however, specific methods used for these forecasts. The percent of a sales forecasting method, for example, involves determining future expected sales and finding trends across accounts in statements. This is typically used when creating pro formas internally.

Other individual line items can also be easily forecasted, such as the cost of goods sold, since it can be assumed it will proportionally grow with sales. Line items like income tax expense, on the other hand, typically don’t change directly with sales. Stable businesses can generally estimate income tax expense as a percentage of income before taxes.

All in all, the process of preparing a pro forma balance sheet is much the same as preparing a normal balance sheet . The same holds true for the process of preparing income statements and cash flow statements. It differs when you begin forecasting various line items and calculating how those projections impact your bottom line.

Beyond the Numbers

The true value of pro forma statements goes beyond the numbers they show. These reports provide key stakeholders, investors, and creditors the foresight needed to make decisions and strategically plan. Managers and individual contributors can also benefit from creating pro forma statements, enabling them to understand different factors impacting business units.

Remember: There are limitations to pro forma financial statements. Since these documents are based on assumptions, they shouldn’t be taken as fact. Rather, they can inform decisions using hypothetical data based on historical trends.

Taking an online course like Financial Accounting can help you understand how to create and interpret different kinds of financial statements so you can find meaning in them. Learners enrolled in the course learn the language of accounting and how to create financial statements and forecasts to make strategic decisions.

Do you want to learn more about what's behind the numbers on financial statements? Explore Financial Accounting , one of three courses comprising our Credential of Readiness (CORe) program , to discover how you can develop an intuitive knowledge of financial principles and statements to unlock critical insights into performance and potential.

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How to Create an Accurate Pro Forma in Real Estate

Real estate investors purchase rental property for the cash flow the property’s rent roll will generate. A real estate pro forma is used by buyers and sellers to project the potential internal rate of return (IRR) of a rental property and to get the best purchase price possible.

In this article, we’ll discuss how a pro forma in real estate works, explain how buyers and sellers use a pro forma income statement, and review other key rental property financial metrics that rely on having an accurate pro forma cash flow statement.

What Does Pro Forma Mean?

If you studied Latin in school then you already know what pro forma means. But for the rest of us, pro forma means “as a matter of form” or “for the sake of form.” In real estate, investors use a pro forma to determine what the income, expenses , potential revenue, and net operating income of a property should be or could be.

When you buy a rental property already occupied by a tenant from a platform like Roofstock , you already know what the current financial performance of the home is. 

Or you may be purchasing a property directly from an owner in a private-party transaction. If that’s the case, the odds are the seller is using Stessa instead of an Excel spreadsheet to keep track of rental property income, expenses, and other deductions to generate accurate financial reports such as income statements and net cash flow reports.

But what if you’re investing in a home that has never been rented before and want to know what your future equity might be? Or you’re purchasing a value add property and want to make sure you can generate enough potential rental income by raising the rent to market rates to pay for the cost of updating and capital expenditures?

In situations like these, real estate investors use a pro forma to better forecast income and expenses and project future potential profits.

Why Pro Forma in Real Estate is Important

GIGO is an acronym for “garbage in, garbage out.” In computer science, GIGO refers to the fact that if input data is flawed, the output will be complete nonsense or garbage. That’s why real estate investors use a pro forma to make sure their financial projections are as accurate as possible.

The pro forma statement contains two important pieces of data: Cash flow projections and net operating income (NOI). NOI and cash flow are used in other key investment property formulas such as ROI (return on investment), cash-on-cash return, and cap rate. 

If a pro forma has the wrong NOI or cash flow, an investor could end up overpaying for an underperforming property or taking a pass on a good investment that another investor grabs because they put together their pro forma correctly. 

How to Create a Pro Forma for Real Estate

Here’s how to create a basic monthly pro forma for real estate:

Property price = $150,000

• Projected gross rental income = $1,500
• Vacancy loss at 5% = $75
• Effective gross income = $1,425
• Repairs at 5% = $75
• Property management fees at 8% = $120
• Other expenses (utilities, pro rata property tax, insurance, reserves, etc.) = $300
• Projected monthly cash flow or NOI = $930

After you’ve calculated the pro forma cash flow or NOI, the next step is to add in your monthly mortgage expense to determine your before-tax cash flow:

• Mortgage expense debt service = $476 (principle and interest only)
• Before tax cash flow = $454 per month

Why Buyers & Sellers Use a Pro Forma

Buyers and sellers use a pro forma to create different “what if” scenarios. 

For example, if you are selling a property, a pro forma can be used to predict the change in NOI and property value if the vacancy rate increased from 5% to 10%. Or if you’re purchasing a value add property that requires $20,000 in updating costs, you can use a pro forma to forecast how quickly the renovation expense would be repaid if you increased rents by 5%, 10%, or 15%.

Seller’s Pro Forma

Sellers who want to sell their property at the highest possible price can use a pro forma to make it look like the property is generating as much cash flow and NOI as possible. They do that by creating a simplified pro forma statement that may overlook important operating expenses such as property management fees or vacancy loss. 

That doesn’t necessarily mean the seller is being deceptive because they could be self-managing their rental property. But if you’re a remote real estate investor you’ll definitely need the services of a property manager . 

Let’s look at two basic pro forma statements for a single-family rental property worth $150,000, with and without an 8% property management fee factored in, and the impact on NOI:

• Potential gross rental income = $18,000
• Vacancy loss at 5% = <$900>
• Effective gross income = $17,100
• Repairs at 5% = $900
• Property management fees 8% = $1,440
• Other expenses (such as utilities, property taxes, insurance, leasing fee, reserves) = $3,600
• Total expenses = $5,940
• Net operating income (NOI) = $11,160

Cap rate = NOI / Market value = $11,160 NOI / $150,000 Market value = 0.074 or 7.4%

As a remote real estate investor you would expect a cap rate of 7.4% with the property management fee factored in, based on the above pro forma. 

However, if the seller omits the property management expense the NOI would increase by $1,440 to $12,600 with the seller claiming the property has a cap rate of 8.4%:

$12,600 NOI / $150,000 Market value = 0.084 or 8.4%

Buyer’s Pro Forma

Now let’s assume you’re purchasing the same property, but there is a significant amount of deferred maintenance the current owner wasn’t able to make. Your local contractor has told you the property needs $10,000 in repairs. Based on the rent comparables you predict you’ll be able to raise the rent by 20% after the property is fully renovated. 

Creating a pro forma will tell you how long it should take to pay for the repairs based on the increase in NOI:

• Potential gross rental income = $18,000 + 20% = $21,600
• Vacancy loss at 5% = <$1,080>
• Effective gross income = $20,520
• Repairs at 5% = $1,080 (excluding the one-time renovation expense)
• Property management fees 8% = $1,728
• Other expenses (such as utilities, property taxes, insurance, leasing fee, reserves) = $4,320
• Total expenses = $7,128
• Net operating income (NOI) = $13,392 new NOI – $11,160 old NOI = $2,232 additional NOI

Based on the above pro forma, it will take about 4 ½ years to pay for the renovation expense with the increase in NOI. However, in reality, it will actually take less time, because you predict that you will be able to increase your rent by 6% each year. 

We can create a very simple pro forma to calculate how the NOI increase will change when the rent is raised each year:

• Year 1 = $2,232 NOI (net difference between NOI before and after renovation)
• Year 2 = $2,366
• Year 3 = $2,508
• Year 4 = $2,658
• Year 5 = $235 per month

Based on the above pro forma for the change in NOI factoring an annual rent increase, the renovation expenses of $10,000 would be paid for in 4 years and 1 month.

Why an Accurate Pro Forma is Important

Numerous rental property financial performance metrics such as cap rate, cash-on-cash return , and ROI (return on investment) depend on calculating accurate NOI and cash flow. 

Let’s look at how to calculate each of these metrics, assuming an investor finances a property with a market value of $150,000 using a 25% ($37,500) down payment with a monthly mortgage payment of $454 (principle and interest), and earns an NOI of $11,160 per year:

#1 Cap rate

• Cap rate = NOI / Market value
• $11,160 NOI / $150,000 Market value = 7.4% pro forma

#2 Cash-on-cash return

• Cash-on-cash return = Before tax cash flow / Total cash invested
• $5,448 before tax cash flow / $37,500 total cash invested (down payment) = 14.5% pro forma

To calculate the pro forma return on investment (ROI) we’ll assume the property is held for five years. According to Zillow , home values in the U.S. have increased by about 32% over the past five years. Based on this historical average, we predict the home will have a market value of $198,000 when it is sold:

• Before tax cash flow = $5,448 x 5 years = $27,240
• Gain on sale = $198,000 – $150,000 = $48,000
• Cost of investment = $37,500 original down payment

Using the data above, the pro forma ROI for the five-year holding period will be:

• ROI = (Gain on investment – Cost of investment) / Cost of investment
• Gain on investment = $27,240 before tax cash flow + $48,000 gain on sale = $75,240
• ROI = ($75,240 – $37,500) / $37,500 = 14.94% ROI pro forma, annualized

Final Thoughts on Pro Formas

A pro forma in real estate is used by investors to calculate what the net operating income (NOI) and cash flow from a property should be and could be. 

Creating an accurate pro forma is critical because various rental property financial metrics such as cap rate, cash-on-cash return, and ROI (rate of return) all depend on a good pro forma analysis. 

Using the wrong information in a pro forma could lead to overpaying for a property that underperforms, or missing out on a great opportunity to purchase a rental property.

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47 CFR § 1.767 - Cable landing licenses.

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(a) Applications for cable landing licenses under 47 U.S.C. 34 - 39 and Executive Order No. 10530 , dated May 10, 1954, should be filed in accordance with the provisions of that Executive Order. These applications should contain:

(1) The name, address and telephone number(s) of the applicant ;

(2) The Government, State , or Territory under the laws of which each corporate or partnership applicant is organized;

(3) The name, title, post office address, and telephone number of the officer and any other contact point, such as legal counsel, to whom correspondence concerning the application is to be addressed;

(4) A description of the submarine cable, including the type and number of channels and the capacity thereof;

(5) A specific description of the cable landing stations on the shore of the United States and in foreign countries where the cable will land. The description shall include a map showing specific geographic coordinates, and may also include street addresses, of each landing station . The map must also specify the coordinates of any beach joint where those coordinates differ from the coordinates of the cable station . The applicant initially may file a general geographic description of the landing points; however, grant of the application will be conditioned on the Commission 's final approval of a more specific description of the landing points, including all information required by this paragraph, to be filed by the applicant no later than ninety (90) days prior to construction. The Commission will give public notice of the filing of this description, and grant of the license will be considered final if the Commission does not notify the applicant otherwise in writing no later than sixty (60) days after receipt of the specific description of the landing points, unless the Commission designates a different time period;

(6) A statement as to whether the cable will be operated on a common carrier or non-common carrier basis;

(7) A list of the proposed owners of the cable system, including each U.S. cable landing station , their respective voting and ownership interests in each U.S. cable landing station , their respective voting interests in the wet link portion of the cable system, and their respective ownership interests by segment in the cable;

(8) For each applicant:

(i) The place of organization and the information and certifications required in §§ 63.18(h) and (o) of this chapter;

(ii) A certification as to whether or not the applicant is, or is affiliated with, a foreign carrier, including an entity that owns or controls a cable landing station , in any foreign country. The certification shall state with specificity each such country;

(iii) A certification as to whether or not the applicant seeks to land and operate a submarine cable connecting the United States to any country for which any of the following is true. The certification shall state with specificity the foreign carriers and each country:

(A) The applicant is a foreign carrier in that country; or

(B) The applicant controls a foreign carrier in that country; or

(C) There exists any entity that owns more than 25 percent of the applicant , or controls the applicant , or controls a foreign carrier in that country.

(D) Two or more foreign carriers (or parties that control foreign carriers) own, in the aggregate, more than 25 percent of the applicant and are parties to, or the beneficiaries of, a contractual relation (e.g., a joint venture or market alliance) affecting the provision or marketing of arrangements for the terms of acquisition, sale, lease, transfer and use of capacity on the cable in the United States; and

(iv) For any country that the applicant has listed in response to paragraph (a)(8)(iii) of this section that is not a member of the World Trade Organization, a demonstration as to whether the foreign carrier lacks market power with reference to the criteria in § 63.10(a) of this chapter.

Under § 63.10(a) of this chapter, the Commission presumes, subject to rebuttal, that a foreign carrier lacks market power in a particular foreign country if the applicant demonstrates that the foreign carrier lacks 50 percent market share in international transport facilities or services, including cable landing station access and backhaul facilities, intercity facilities or services, and local access facilities or services on the foreign end of a particular route.

(9) A certification that the applicant accepts and will abide by the routine conditions specified in paragraph (g) of this section; and

(10) Any other information that may be necessary to enable the Commission to act on the application .

Applicants for cable landing licenses may be subject to the consistency certification requirements of the Coastal Zone Management Act (CZMA), 16 U.S.C. 1456 , if they propose to conduct activities, in or outside of a coastal zone of a state with a federally-approved management plan, affecting any land or water use or natural resource of that state 's coastal zone. Before filing their applications for a license to construct and operate a submarine cable system or to modify the construction of a previously approved submarine cable system, applicants must determine whether they are required to certify that their proposed activities will comply with the enforceable policies of a coastal state 's approved management program. In order to make this determination, applicants should consult National Oceanic Atmospheric Administration (NOAA) regulations, 15 CFR part 930 , Subpart D, and review the approved management programs of coastal states in the vicinity of the proposed landing station to verify that this type of application is not a listed federal license activity requiring review. After the application is filed, applicants should follow the procedures specified in 15 CFR 930.54 to determine whether any potentially affected state has sought or received NOAA approval to review the application as an unlisted activity. If it is determined that any certification is required, applicants shall consult the affected coastal state(s) (or designated state agency(ies)) in determining the contents of any required consistency certification(s). Applicants may also consult the Office of Ocean and Coastal Management (OCRM) within NOAA for guidance. The cable landing license application filed with the Commission shall include any consistency certification required by section 1456(c)(3)(A) for any affected coastal state(s) that lists this type of application in its NOAA-approved coastal management program and shall be updated pursuant to § 1.65 of the Commission 's rules, 47 CFR 1.65 , to include any subsequently required consistency certification with respect to any state that has received NOAA approval to review the application as an unlisted federal license activity. Upon documentation from the applicant—or notification from each coastal state entitled to review the license application for consistency with a federally approved coastal management program—that the state has either concurred, or by its inaction, is conclusively presumed to have concurred with the applicant 's consistency certification, the Commission may take action on the application .

(i) If applying for authority to assign or transfer control of an interest in a cable system, the applicant shall complete paragraphs (a)(1) through (a)(3) of this section for both the transferor/assignor and the transferee/assignee. Only the transferee/assignee needs to complete paragraphs (a)(8) through (a)(9) of this section. At the beginning of the application , the applicant should also include a narrative of the means by which the transfer or assignment will take place. The application shall also specify, on a segment specific basis, the percentage of voting and ownership interests being transferred or assigned in the cable system, including in a U.S. cable landing station . The Commission reserves the right to request additional information as to the particulars of the transaction to aid it in making its public interest determination.

(ii) In the event the transaction requiring an assignment or transfer of control application also requires the filing of a foreign carrier affiliation notification pursuant to § 1.768 , the applicant shall reference in the application the foreign carrier affiliation notification and the date of its filing. See § 1.768 . See also paragraph (g)(7) of this section (providing for post-transaction notification of pro forma assignments and transfers of control).

(iii) An assignee or transferee must notify the Commission no later than thirty (30) days after either consummation of the assignment or transfer or a decision not to consummate the assignment or transfer. The notification shall identify the file numbers under which the initial license and the authorization of the assignment or transfer were granted.

(b) These applications are acted upon by the Commission after obtaining the approval of the Secretary of State and such assistance from any executive department or establishment of the Government as it may require.

(c) Original files relating to submarine cable landing licenses and applications for licenses since June 30, 1934, are kept by the Commission . Such applications for licenses (including all documents and exhibits filed with and made a part thereof, with the exception of any maps showing the exact location of the submarine cable or cables to be licensed) and the licenses issued pursuant thereto, with the exception of such maps, shall, unless otherwise ordered by the Commission , be open to public inspection in the offices of the Commission in Washington, D.C.

(d) Original files relating to licenses and applications for licenses for the landing operation of cables prior to June 30, 1934, were kept by the Department of State , and such files prior to 1930 have been transferred to the Executive and Foreign Affairs Branch of the General Records Office of the National Archives. Requests for inspection of these files should, however, be addressed to the Federal Communications Commission , Washington, D.C., 20554; and the Commission will obtain such files for a temporary period in order to permit inspection at the offices of the Commission .

(e) A separate application shall be filed with respect to each individual cable system for which a license is requested or a modification of the cable system, renewal , or extension of an existing license is requested. Applicants for common carrier cable landing licenses shall also separately file an international section 214 authorization for overseas cable construction.

(f) Applicants shall disclose to any interested member of the public, upon written request, accurate information concerning the location and timing for the construction of a submarine cable system authorized under this section. This disclosure shall be made within 30 days of receipt of the request.

(g) Routine conditions. Except as otherwise ordered by the Commission , the following rules apply to each licensee of a cable landing license granted on or after March 15, 2002:

(1) Grant of the cable landing license is subject to:

(i) All rules and regulations of the Federal Communications Commission ;

(ii) Any treaties or conventions relating to communications to which the United States is or may hereafter become a party; and

(iii) Any action by the Commission or the Congress of the United States rescinding, changing, modifying or amending any rights accruing to any person by grant of the license;

(2) The location of the cable system within the territorial waters of the United States of America, its territories and possessions, and upon its shores shall be in conformity with plans approved by the Secretary of the Army. The cable shall be moved or shifted by the licensee at its expense upon request of the Secretary of the Army, whenever he or she considers such course necessary in the public interest, for reasons of national defense, or for the maintenance and improvement of harbors for navigational purposes;

(3) The licensee shall at all times comply with any requirements of United States government authorities regarding the location and concealment of the cable facilities, buildings, and apparatus for the purpose of protecting and safeguarding the cables from injury or destruction by enemies of the United States of America;

(4) The licensee, or any person or company controlling it, controlled by it, or under direct or indirect common control with it, does not enjoy and shall not acquire any right to handle traffic to or from the United States, its territories or its possessions unless such service is authorized by the Commission pursuant to section 214 of the Communications Act, as amended;

(i) The licensee shall be prohibited from agreeing to accept special concessions directly or indirectly from any foreign carrier, including any entity that owns or controls a foreign cable landing station , where the foreign carrier possesses sufficient market power on the foreign end of the route to affect competition adversely in the U.S. market, and from agreeing to accept special concessions in the future.

(ii) For purposes of this section, a special concession is defined as an exclusive arrangement involving services, facilities, or functions on the foreign end of a U.S. international route that are necessary to land, connect, or operate submarine cables, where the arrangement is not offered to similarly situated U.S. submarine cable owners, indefeasible-right-of-user holders, or lessors, and includes arrangements for the terms for acquisition, resale, lease, transfer and use of capacity on the cable; access to collocation space; the opportunity to provide or obtain backhaul capacity; access to technical network information; and interconnection to the public switched telecommunications network.

(iii) Licensees may rely on the Commission 's list of foreign carriers that do not qualify for the presumption that they lack market power in particular foreign points for purposes of determining which foreign carriers are the subject of the requirements of this section. The Commission 's list of foreign carriers that do not qualify for the presumption that they lack market power is available from the Office of International Affairs' website at: https://www.fcc.gov/international-affairs.

(6) Except as provided in paragraph (g)(7) of this section, the cable landing license and rights granted in the license shall not be transferred, assigned, or disposed of, or disposed of indirectly by transfer of control of the licensee, unless the Federal Communications Commission gives prior consent in writing;

(7) A pro forma assignee or person or company that is the subject of a pro forma transfer of control of a cable landing license is not required to seek prior approval for the pro forma transaction. A pro forma assignee or person or company that is the subject of a pro forma transfer of control must notify the Commission no later than thirty (30) days after the assignment or transfer of control is consummated. The notification must certify that the assignment or transfer of control was pro forma , as defined in § 63.24 of this chapter, and, together with all previous pro forma transactions, does not result in a change of the licensee's ultimate control. The licensee may file a single notification for an assignment or transfer of control of multiple licenses issued in the name of the licensee if each license is identified by the file number under which it was granted;

(8) Unless the licensee has notified the Commission in the application of the precise locations at which the cable will land, as required by paragraph (a)(5) of this section, the licensee shall notify the Commission no later than ninety (90) days prior to commencing construction at that landing location. The Commission will give public notice of the filing of each description, and grant of the cable landing license will be considered final with respect to that landing location unless the Commission issues a notice to the contrary no later than sixty (60) days after receipt of the specific description. See paragraph (a)(5) of this section;

(9) The Commission reserves the right to require the licensee to file an environmental assessment should it determine that the landing of the cable at the specific locations and construction of necessary cable landing stations may significantly affect the environment within the meaning of § 1.1307 implementing the National Environmental Policy Act of 1969 . See § 1.1307(a) and (b) . The cable landing license is subject to modification by the Commission under its review of any environmental assessment or environmental impact statement that it may require pursuant to its rules. See also § 1.1306 note 1 and § 1.1307(c) and (d) ;

(10) The Commission reserves the right, pursuant to section 2 of the Cable Landing License Act, 47 U.S.C. 35 , Executive Order No. 10530 as amended, and section 214 of the Communications Act of 1934 , as amended, 47 U.S.C. 214 , to impose common carrier regulation or other regulation consistent with the Cable Landing License Act on the operations of the cable system if it finds that the public interest so requires;

(11) The licensee, or in the case of multiple licensees, the licensees collectively, shall maintain de jure and de facto control of the U.S. portion of the cable system, including the cable landing stations in the United States, sufficient to comply with the requirements of the Commission 's rules and any specific conditions of the license;

(12) The licensee shall comply with the requirements of § 1.768 ;

(13) The licensee shall file annual international circuit capacity reports as required by § 43.82 of this chapter.

(14) The cable landing license is revocable by the Commission after due notice and opportunity for hearing pursuant to section 2 of the Cable Landing License Act, 47 U.S.C. 35 , or for failure to comply with the terms of the license or with the Commission 's rules; and

(15) The licensee must notify the Commission within thirty (30) days of the date the cable is placed into service. The cable landing license shall expire twenty-five (25) years from the in-service date, unless renewed or extended upon proper application . Upon expiration , all rights granted under the license shall be terminated.

(16) Licensees shall file submarine cable outage reports as required in 4 7 CFR part 4.

(h) Applicants/Licensees. Except as otherwise required by the Commission , the following entities, at a minimum, shall be applicants for, and licensees on, a cable landing license:

(1) Any entity that owns or controls a cable landing station in the United States; and

(2) All other entities owning or controlling a five percent (5%) or greater interest in the cable system and using the U.S. points of the cable system.

(i) Processing of cable landing license applications. The Commission will take action upon an application eligible for streamlined processing, as specified in paragraph (k) of this section, within forty-five (45) days after release of the public notice announcing the application as acceptable for filing and eligible for streamlined processing. If the Commission deems an application seeking streamlined processing acceptable for filing but ineligible for streamlined processing, or if an applicant does not seek streamlined processing, the Commission will issue public notice indicating that the application is ineligible for streamlined processing. Within ninety (90) days of the public notice, the Commission will take action upon the application or provide public notice that, because the application raises questions of extraordinary complexity, an additional 90-day period for review is needed. Each successive 90-day period may be so extended.

(j) Applications for streamlining. Each applicant seeking to use the streamlined grant procedure specified in paragraph (i) of this section shall request streamlined processing in its application . Applications for streamlined processing shall include the information and certifications required by paragraph (k) of this section. On the date of filing with the Commission , the applicant shall also send a complete copy of the application , or any major amendments or other material filings regarding the application , to: U.S. Coordinator, EB/CIP, U.S. Department of State , 2201 C Street, NW., Washington, DC 20520-5818; Office of Chief Counsel/NTIA, U.S. Department of Commerce , 14th St. and Constitution Ave., NW., Washington, DC 20230; and Defense Information Systems Agency , ATTN: GC/DO1, 6910 Cooper Avenue, Fort Meade, MD 20755-7088, and shall certify such service on a service list attached to the application or other filing.

(k) Eligibility for streamlining. Each applicant must demonstrate eligibility for streamlining by:

(1) Certifying that it is not a foreign carrier and it is not affiliated with a foreign carrier in any of the cable's destination markets;

(2) Demonstrating pursuant to § 63.12(c)(l)(i) through (iii) of this chapter that any such foreign carrier or affiliated foreign carrier lacks market power; or

(3) Certifying that the destination market where the applicant is, or has an affiliation with, a foreign carrier is a World Trade Organization (WTO) Member and the applicant agrees to accept and abide by the reporting requirements set out in paragraph (l) of this section. An application that includes an applicant that is, or is affiliated with, a carrier with market power in a cable's non-WTO Member destination country is not eligible for streamlining.

(4) Certifying that for applications for a license to construct and operate a submarine cable system or to modify the construction of a previously approved submarine cable system the applicant is not required to submit a consistency certification to any state pursuant to section 1456(c)(3)(A) of the Coastal Zone Management Act (CZMA), 16 U.S.C. 1456 .

Streamlining of cable landing license applications will be limited to those applications where all potentially affected states, having constructive notice that the application was filed with the Commission , have waived, or are deemed to have waived, any section 1456(c)(3)(A) right to review the application within the thirty-day period prescribed by 15 CFR 930.54 .

(l) Reporting Requirements Applicable to Licensees Affiliated with a Carrier with Market Power in a Cable's WTO Destination Market. Any licensee that is, or is affiliated with, a carrier with market power in any of the cable's WTO Member destination countries, and that requests streamlined processing of an application under paragraphs (j) and (k) of this section, must comply with the following requirements:

(1) File quarterly reports summarizing the provisioning and maintenance of all network facilities and services procured from the licensee's affiliate in that destination market, within ninety (90) days from the end of each calendar quarter. These reports shall contain the following:

(i) The types of facilities and services provided (for example, a lease of wet link capacity in the cable, collocation of licensee's equipment in the cable station with the ability to provide backhaul, or cable station and backhaul services provided to the licensee);

(ii) For provisioned facilities and services, the volume or quantity provisioned, and the time interval between order and delivery; and

(iii) The number of outages and intervals between fault report and facility or service restoration; and

(2) File quarterly, within 90 days from the end of each calendar quarter, a report of its active and idle 64 kbps or equivalent circuits by facility (terrestrial, satellite and submarine cable).

(1) Except as specified in paragraph (m)(2) of this section, amendments to pending applications , and applications to modify a license, including amendments or applications to add a new applicant or licensee, shall be signed by each initial applicant or licensee, respectively. Joint applicants or licensees may appoint one party to act as proxy for purposes of complying with this requirement.

(2) Any licensee that seeks to relinquish its interest in a cable landing license shall file an application to modify the license. Such application must include a demonstration that the applicant is not required to be a licensee under paragraph (h) of this section and that the remaining licensee(s) will retain collectively de jure and de facto control of the U.S. portion of the cable system sufficient to comply with the requirements of the Commission 's rules and any specific conditions of the license, and must be served on each other licensee of the cable system.

(1) With the exception of submarine cable outage reports, and subject to the availability of electronic forms, all applications and notifications described in this section must be filed electronically through the International Communications Filing System (ICFS). A list of forms that are available for electronic filing can be found on the ICFS homepage. For information on electronic filing requirements, see subpart Y of this part, and the ICFS homepage at https://www.fcc.gov/icfs. See also §§ 63.20 and 63.53 of this chapter.

(2) Submarine cable outage reports must be filed as set forth in part 4 of this Title.

(o) Outage Reporting. Licensees of a cable landing license granted prior to March 15, 2002 shall file submarine cable outage reports as required in part 4 of this Title.

The terms “affiliated” and “foreign carrier,” as used in this section, are defined as in § 63.09 of this chapter except that the term “foreign carrier” also shall include any entity that owns or controls a cable landing station in a foreign market. The term “country” as used in this section refers to the foreign points identified in the U.S. Department of State list of Independent States of the World and its list of Dependencies and Areas of Special Sovereignty. See http://www.state.gov.

• National Environmental Policy Act of 1969
• Communications Act of 1934

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