A pro forma balance sheet is particularly useful for evaluating financing needs under different scenario assumptions. Which option best describes this use?

• A. It replaces the current balance sheet for reporting.
• B. It is used to evaluate financing needs under different scenario assumptions.
• C. It forecasts only marketing outcomes.
• D. It is used to set clinical guidelines.

Answer: (B)

A pro forma balance sheet is a forward-looking projection of assets, liabilities, and equity under specific assumptions about future operations. It helps evaluate financing needs under different scenario assumptions because changing sales, collections, inventories, capital expenditures, or debt and equity plans directly alters working capital and the firm’s funding gaps. By modeling these variables across multiple scenarios, you can see when external financing would be required, how much would be needed, and when it would be needed, enabling better planning and risk management. It isn’t a replacement for the current balance sheet in reporting, it isn’t designed to forecast marketing outcomes, and it isn’t used to set clinical guidelines.