Definition Pro Forma Earnings. Description.
The Pro Forma Earnings of a company is an additional
adjusted statement of its profit, unlike the reported accounting profit (US
GAAP or IAS or national systems), by excluding
transactions or expenses that are unusual, nonrecurring, or otherwise not
representative of the company's true business.
Typical items that may be excluded are:
Is this type of reporting earnings useful? Advocates
say that this helps investors to see through incidental transactions or expenses.
Critics on the other hand say pro forma numbers are misleading the investors
because there is no defined meaning or standard for it and most "unusual"
transactions or expenses should be regarded as part of the regular business.
Also they claim there are better ways to inform investors about the true cash
flows of the company, such as EVA and
Investors are wise to always distinguish between accounting
profit and pro forma profits. Using pro forma earnings to analyze a firm
over time can make sense, using this type of earnings to compare two companies
is normally not a good idea.
Pro forma earnings are also referred to as Normalized Earnings.
Pro Forma Earnings Special Interest Group
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Compare with: EBIT |
Economic Value Added |
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