True, False, or Uncertain: Although there can be "incorrect" pro formas, there can be
more than one "correct" pro forma. Explain your answer.

Question

Quizplus · Accepted Answer

Two highly skilled analysts can develop two different "correct" pro formas because of differences in assumptions, so long the assumptions used are logical and valid. This is why we sometimes observe one analyst rating a stock as a "strong buy" and another, equally respected, analyst rating it as a "hold." Of course, pro formas can also be incorrect if the assumptions used are invalid and ignore facts. For example, a pro forma that is based on an assumption of 25% sales growth for a firm that has historically had a sales growth of only 5% in an industry with an average sales growth rate of 8% when the economy is expected to remain unchanged and the firm itself has undergone no major changes would be incorrect (even if, ex post, the firm actually experienced a 25% growth in sales because of some unexpected occurrence).

True, False, or Uncertain: Although There Can Be "Incorrect" Pro