CHAPTER TEN Getting Creative with the Income Statement: Pro-Forma Measures of Earnings Pro forma information is a tool that companies have invented to disseminate an idealized version of their performance. It may exclude any cost or expense the company wants, yet it is presented in a form that suggests reliability and Cash flow, by the way, is not EBITDA. EBITDA is the biggest joke of the Are GAAP net earnings on the endangered species list? Pro forma per-share figures in earnings announcements, a number derived after removing an expanding list of items and sometimes real cash expenses, seem to be. | CHAPTER TEN Getting Creative with the Income Statement Pro-Forma Measures of Earnings Pro forma information is a tool that companies have invented to disseminate an idealized version of their performance. It may exclude any cost or expense the company wants yet it is presented in a form that suggests reliability and Cash flow by the way is not EBITDA. EBITDA is the biggest joke of the Are GAAP net earnings on the endangered species list Pro forma per-share figures in earnings announcements a number derived after removing an expanding list of items and sometimes real cash expenses seem to be crowding out traditional net earnings in many Operating income . is often more important to investors than net income and widely regarded as an indicator of how well management is running the The previous chapter laid out the GAAP requirements surrounding the income statement and also outlined how the financial numbers game could be played by creative classifications within the GAAP-basis income statement. Pro-forma creativity develops measures of financial performance that employ GAAP information but they are decidedly non-GAAP measures. A common justification for one such pro-forma measure sustainable or core earnings is illustrated by this statement from the Corning Inc. annual report Corning believes comparing its operating results excluding non-recurring items a measure that is not in accordance with generally accepted accounting principles GAAP and may 317 The Financial Numbers Game not be consistent with measures used by other companies provides a better understanding of the changes in its operating Corning s pro-forma measure is GAAP net income adjusted for the effects of a number of charges and gains that it judged to be nonrecurring. In practice it is common to discuss results after the exclusion of selected nonrecurring items. Corning simply refers to this pro-forma measure as operating results excluding non-recurring
