Volume 11, No. 1


Pro Forma Earnings: A Different Recipe:  What could be more important to analysts and investors than corporate earnings? Why, "pro forma" corporate earnings, of course. Pro forma earnings have been around for years in some fashion or other. In fact, the adjustments made by analysts - both published and unpublished - to reported earnings have always been pro forma exercises. It's always been the job of the analyst to cull the chaff from the earnings wheat because different income and expense items carry different connotations about how well a firm has done, and how it might be expected to do in the future. The spirit of pro forma earnings, at least as interpreted by this observer, is that they are supposed to provide insights to the financial statement user as to how the reporting firm is doing when all the important factors are considered - and the extraneous ones are ignored. In the past few years, however, companies have become visibly more strident in publishing pro forma earnings of their own - always with the excuse that analysts are going to make those adjustments anyway, and probably to make earnings look better than the reported amounts. In keeping with the genuine spirit of pro forma earnings, this report offers a different recipe for pro forma earnings for the S&P 100 - one that excludes extraneous pension items and includes the effects of stock option compensation.

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