if proforma accounts for all the non-recurring charges against operating income, what does the reported earnings number consist of.
When a company reports an earnings number without non-recurring charges, it means that they have adjusted the number for one time events that happened in the reporting period which they believe will not occur again. That is, the number is what would have been the case if the one-time event had not occured.
Proforma reporting is when a company adjusts the earnings around things that have not yet happened, or which are not complete. These are usually one time events, but are often (usually?) of a type which have long term repercussions to the company and its prospects. That is, this number clarifies what the situation would have looked like if the planned event had already happened.
In both cases the company is attempting for shareholders to separate from a valuation perspective that which they think is significant from that which is much less so.
The reported number includes the onetime charges rather than excluding them, and does not take account of things that are going to happen, just what did. This sounds very clear and easy but understand that there are a myriad of accounting rules and techniques which, though designed to clarify and standardize reporting, as well as make it more honest, often obscure to those outside the profession.
Reporting earnings adjusted for non-recurring charges is very common today whereas reporting proforma is much less so. This is both because non-recurring charges are much more frequent and because they are much more easily understood.
Note that both practices have their detractors, who feel that the practices are legal ways for companies to slant coverage and understanding of what is really happening. Most investors think the opposite.
Hope this helps, but accounting is not my strongest suit, so you may want a more detailed opinion from others. |
