3 ms·

Proforma results aren't necessarily bad, they are the company trying to show themselves in the best possible light. Historically they were used to show how the

Proforma results aren't necessarily bad, they are the company trying to show themselves in the best possible light. Historically they were used to show how the company was doing ex of one time events( almost exclusively negative events) such as layoffs, lawsuit settlements, divesting/closing money loosing units, etc. The biggest issue I see is that often the company will clearly spend more time with their proforma results than their GAAP results. The outcome from this is that often when analyst or data companies try to put together metrics on a company they'll use GAAP results but if a ratio they want isn't present they'll substitute the ratio from the proforma results. This means many of the data you get on google finance or even Bloomberg is an amalgamation of the two, which leads to garbage in-garbage out. Side note: if you can clean data, you'll have a job for life!!! Tech companies tend to be big users of pro forma results. Facebook famously turned a $700 million loss (GAAP) in 2012 into a $400 profit (Pro forma) by not using Black Scholes to calculate the cost of employee stock options. Groupon was another poster child for pushing pro forma results vs GAAP results and that turned out about as well as you'd expect. Just google "Groupon pro forma vs GAAP".

wallacoloo 11y ago
> Historically they were used to show how the company was doing ex of one time events( almost exclusively negative events) such as layoffs, lawsuit settlements, divesting/closing money loosing units, etc. Can these really be considered to be one-time events though? I would hypothesize that a company which has seen at least one lawsuit settlement is more likely to see another one down the road than a company which has never seen a lawsuit. Thus, the existence of a settlement should be a reasonable prediction of more losses to occur in the future. So why ignore them? It seems like it would be at least more reasonable to consider the past M GAAP results than the past M non-GAAP results when analyzing a trend. The latter will consistently overestimate growth, whereas the former will have more noise, but averages out to being more representative of the actual growth. And the analyst at least has the necessary data to reasonably calculate error-bounds on his/her estimate.
themartorana 11y ago
Wrapping lies in a name like "pro forma" and calling it legit is still a lie. It boggles my mind that this is written off as acceptable, just another way of looking at the results. I own a business. I understand its accounting. Turning a $700m loss into a $400m profit is a $1.1b lie. Edit: if you'd like to put recurring profits and expenses on a sheet and show it to me, fine. But if you omit one-off expenses when representing your financial position (and let's be honest, there are always one-offs) you've fraudulently represented yourself.
- lmm 11y ago
  Accounting is not a world of absolute truth like that, because no-one really knows what next year's cash flow will be. There is plenty of scope for opinion. Valuing your employee stock options according to Black Scholes is one possible model, not the absolute truth, and valuing them according to their face value is not a lie.

wallacoloo 11y ago

> Historically they were used to show how the company was doing ex of one time events( almost exclusively negative events) such as layoffs, lawsuit settlements, divesting/closing money loosing units, etc. Can these really be considered to be one-time events though? I would hypothesize that a company which has seen at least one lawsuit settlement is more likely to see another one down the road than a company which has never seen a lawsuit. Thus, the existence of a settlement should be a reasonable prediction of more losses to occur in the future. So why ignore them? It seems like it would be at least more reasonable to consider the past M GAAP results than the past M non-GAAP results when analyzing a trend. The latter will consistently overestimate growth, whereas the former will have more noise, but averages out to being more representative of the actual growth. And the analyst at least has the necessary data to reasonably calculate error-bounds on his/her estimate.

themartorana 11y ago

Wrapping lies in a name like "pro forma" and calling it legit is still a lie. It boggles my mind that this is written off as acceptable, just another way of looking at the results. I own a business. I understand its accounting. Turning a $700m loss into a $400m profit is a $1.1b lie. Edit: if you'd like to put recurring profits and expenses on a sheet and show it to me, fine. But if you omit one-off expenses when representing your financial position (and let's be honest, there are always one-offs) you've fraudulently represented yourself.

lmm 11y ago
Accounting is not a world of absolute truth like that, because no-one really knows what next year's cash flow will be. There is plenty of scope for opinion. Valuing your employee stock options according to Black Scholes is one possible model, not the absolute truth, and valuing them according to their face value is not a lie.