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

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Clean Accounting

Many professional money managers point to clean and straightforward accounting as a hallmark of good management. They consider repeated one-time, nonrecurring, and extraordinary charges as an indicator of questionable accounting practices.

The beauty of nonrecurring expenses in the eyes of some corporate managers is that they don’t have to count them when they tabulate pro forma earnings. Since the pro forma calculation doesn’t deduct nonrecurring costs to come up with earnings, the more expenses that can be defined as nonrecurring, the higher the reported earnings.

Pro forma originally meant “as if” and was mainly employed to present the results of recently merged companies “as if” they had always been a single company. In ...

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