Advantages Of Pro Forma Earningss

For example, some companies in specific industries do not need to report their profitability and financial forecast because of the nature of their industry but rather, just present pro-forma analysis to show the company’s operations. They are useful tools to help identify a company's core value drivers and analyse changing trends within company operations. Sometimes this is all that some investors are interested in so it’s irrelevant to present financial information.

Pro-forma earning paint a hypothetical picture of what a company’s earning may be. This is because pro-forma earnings are not calculated using the GAAP guidelines and can be manipulated by the company to show their future profit’s in the best light, and intentionally disregard any information or measures that may obscure the company’s financial statements, although some of the information that is excluded can be vital in evaluating a company’s future prospects. Pro forma earnings also allows management of company to expunge poor decisions from their financial reports that have been costly to the company. The manipulation of data will also allow company to reach their financial projection which in turn aligns with shareholders intention to maximise its share price. Pro-forma data can be useful for …show more content…
They need to look at them at a more in-depth level than just what is being reported because as we know companies manipulate the measures. Pro-forma analysis is not regulated and does not follow the guidelines set by GAAP which means that companies can present information that may be a little dishonest to benefit their business. It is imperative to look at what measures have been included and excluded to decide whether the forecast for the company is accurate. It can be beneficial to compare both pro-forma earnings and GAAP earning to really determine the difference and gain a broader perspective of a company’s