Which of the following best describes the term 'pro forma'?

The term 'pro forma' specifically refers to a financial projection tool that provides estimates of future financial performance based on certain assumptions. It is commonly used in real estate and business to evaluate potential investments, financial plans, or projected revenues and expenses. A pro forma statement typically includes projected income statements, balance sheets, or cash flow statements and helps stakeholders understand what to expect under various scenarios.

In the context of real estate, pro forma analysis is crucial for assessing the viability of a property investment by forecasting rental income, operating costs, and net operating income, which ultimately aids in decision-making on whether to proceed with a transaction or investment opportunity. This forecasting nature directly correlates with its definition as a projection tool.

The other options do not encompass the broader context of a pro forma’s purpose. For instance, pricing lease agreements and estimating property taxes are specific applications within the realm of real estate, while measuring market performance involves analysis of existing data rather than future projections.