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Fire Your Stock Analyst!: Analyzing Stocks on Your Own by Harry Domash

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Pro Forma Accounting vs. GAAP

During the 1990s, many firms, especially techs, emphasized pro forma results in their earnings reports over the numbers resulting from generally accepted accounting practices (GAAP). Originally pro forma meant “as if” and was mainly employed to present the results of recently merged companies as if they had always been a single company. Lately company managements gloomed onto pro forma as a way of inflating their reported earnings by designating a variety of loss items as nonoperating or nonrecurring, and simply not counting them when computing earnings. Unfortunately, the analyst community decided that was a good idea and based their published earnings forecasts on pro forma instead of GAAP results.

However the ...

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