© D.L. Crumbley
Pro forma means “as if,” so pro forma earnings means earnings that would have been reported had the corporation been using alternative methods (e.g., everything but the bad stuff).
“Today, however, pro forma numbers are seldom published for the purpose of informing investors and creditors in a better manner. Instead, these disclosures have become a way of underminding orthodox accounting by not recognizing a variety of items as expenses.”
Examples: Goodwill never declines. Moving expenses and losses from operating items to so-called nonrecurring items. Kodak has taken one-time charges every year for the past 12 years (to improve PE ratio).
Contrast the income with the firm’s operating cash flow.
Source: J.E. Ketz, Hidden Financial Risks, John Wiley & Sons, 2003