Definition

Pro forma income

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.

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