Series 79 practice questionmediumPro Forma Financial Statements
An investment banker is preparing pro forma financial statements for a proposed merger. Which of the following adjustments would NOT typically be included?
- AElimination of intercompany transactions
- BAddition of expected cost synergies from headcount reductions
- CAdjustment for the acquirer's stock price movement after deal announcement✓ Correct answer
- DAccounting for purchase price allocation including goodwill creation
Explanation
Why C — Adjustment for the acquirer's stock price movement after deal announcement
Pro forma financial statements in M&A reflect the combined entity's expected financial performance including synergies, purchase price allocation (goodwill, intangible asset step-ups), elimination of intercompany transactions, and new financing costs. Post-announcement stock price movements are not incorporated into the pro forma because they are speculative and do not represent agreed-upon transaction terms. The pro forma is based on the deal terms as negotiated.
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