Pro-Forma Earnings

What are 'Pro-Forma Earnings'

Pro-forma earnings are 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.

BREAKING DOWN '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!

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RELATED FAQS
  1. What are pro forma earnings?

    Great question, but it is not easily answered, because pro forma earnings figures are inherently different for different ... Read Answer >>
  2. What are the key differences between pro forma statements and GAAP statements?

    Learn the key differences between pro forma and GAAP statements. Review examples and cautionary notes about reliance on pro ... Read Answer >>
  3. What is the difference between EBIT and operating income?

    Read about some of the subtle differences identified by the SEC between earnings before interest and taxes, or EBIT, and ... Read Answer >>
  4. Which pro forma financial statements should always be included in a business plan?

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