What Are Pro-forma Earnings?
Pro-forma earnings describe a financial statement which has hypothetical amounts, or estimates, built into the data to give a “picture” of a company’s profits if certain nonrecurring items were excluded. Pro-forma earnings are not computed using standard generally accepted accounting principles (GAAP), and usually leave out one-time expenses which are not part of normal company operations, such as restructuring costs following a merger. Essentially, a pro-forma financial statement can exclude anything a company believes obscures the accuracy of its financial outlook, and can be a useful piece of information to help assess a company’s future prospects. Every investor should stress GAAP net income, which is the “official” profitability determined by accountants, but a look at pro-forma earnings can also be an informative exercise. For example, net income doesn’t tell the whole story when a company has one-time charges that are irrelevant to future profitability. Some companies therefore
