Pro forma income is a measure of income that usually excludes items that a company thinks are unusual or nonrecurring.
For example, in a recent year, Cisco Systems (a high-tech company) reported a quarterly net loss under GAAP of $2.7 billion. Cisco reported pro forma income for the same quarter as a profit of $230 million. This large difference in profits, between GAAP income numbers and pro forma income is not unusual these days.
To compute pro forma income, companies generally can exclude any items they deem inappropriate for measuring their performance. Many analysts and investors are critical of the practice of using pro forma income because these numbers often make companies look better than they really are.
More from this Section
- Normal balance
The normal balance of an account is on the side where an increase in the account is recorded. Debits to a specific asset account should exceed the credits to that account.
- Bad debts expense
Bad debts expense is an expense account to record uncollectible receivables. Individuals may be laid off from their jobs or faced with unexpected hospital bills.
- Cost Drivers
A cost driver refers to any factor or activity that has a direct cause-effect relationship with the resources consumed.
- Compensating balances
Compensating balances refer to the minimum cash balances required by a bank in support of bank loan. They are a restriction on the use of cash...
- Plant assets
Plant assets are resources that have three characteristics: they have a physical substance are used in the operations of a business, and are not intended for sale to customers.
- Classified of inventory
In a manufacturing company, some inventory may not yet be ready for sale. As a result, manufacturers usually classify inventory into three categories: finished goods...
A budget is a formal written statement of management’s plans for a specified future time period, expressed in financial terms. It normally represents the primary method...