pro forma earnings business definition

Are pro forma earnings sometimes a better measure of a firm's success than earnings reported according to generally accepted principles?

It depends on who computes the pro forma earnings and financial statements. An independent analyst should certainly adjust GAAP-based financial statements in order to produce greater information and more useful insights. One should not rely on pro forma financials disclosed by the reporting entity. Numerous studies confirm the bias of firm-based pro formas. In short, companies tend to include or emphasize favorable financial information and exclude or downplay harmful disclosures in their pro forma financial statements.

Peter M. Bergevin, PhD, Professor of Accounting, School of Business, University of Redlands, Redlands, CA