Pro-Forma Earnings

AAA

DEFINITION of 'Pro-Forma Earnings'

Projected earnings based on a set of assumptions and often used to present a business plan (in Latin pro forma means "for the sake of form"). It also refers to earnings which exclude non-recurring items. Pro-forma earnings are not derived by standard GAAP methods.

INVESTOPEDIA EXPLAINS 'Pro-Forma Earnings'

Items sometimes excluded in pro-forma earnings figures include write-downs, goodwill amortization, depreciation, restructuring and merger costs, interest, taxes, stock based employee pay and other expenses. The company excludes these items with the intent to present its figures more clearly to investors. However, whether or not this is accomplished is debatable. This has spawned such nicknames for pro-forma earnings as EEBS (earnings excluding bad stuff).

Investors should exercise caution when using pro-forma earnings figures in their fundamental analysis. Unlike GAAP earnings, pro-forma earnings do not comply with any standardized rules or regulations. As a result, positive pro-forma earnings can become negative once GAAP requirements are applied and certain items are included in the calculations!

RELATED TERMS
  1. Amortization

    1. The paying off of debt in regular installments over a period ...
  2. Pro-Forma Forecast

    A financial forecast based on pro-forma income statements, balance ...
  3. Non-GAAP Earnings

    An alternative earnings measure of the performance of a company. ...
  4. Annual Report

    1. An annual publication that public corporations must provide ...
  5. Write-Down

    Reducing the book value of an asset because it is overvalued ...
  6. Generally Accepted Accounting Principles ...

    The common set of accounting principles, standards and procedures ...
Related Articles
  1. Understanding Pro-Forma Earnings
    Fundamental Analysis

    Understanding Pro-Forma Earnings

  2. Core Earnings Strip Away
    Options & Futures

    Core Earnings Strip Away "Creative" ...

  3. Surprising Earnings Results
    Markets

    Surprising Earnings Results

  4. Accretion / Dilution Analysis: A Merger ...
    Fundamental Analysis

    Accretion / Dilution Analysis: A Merger ...

comments powered by Disqus
Hot Definitions
  1. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will ...
  2. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  3. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  4. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  5. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  6. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
Trading Center