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

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Reported Earnings

Many firms report two earnings numbers: (1) pro forma, cash, operating, or some other vague term, and (2) earnings according to generally accepted accounting practices (GAAP).

Pro Forma

The reported pro forma or cash earnings typically exclude anything that the firm considers nonrecurring. Waste Management took that concept to the limit when it reported $181 million December 2000 quarter pro forma earnings. Waste Management, it turned out, had decided to ignore “$24 million of operating expense, primarily for truck painting/signage costs and loss on a construction contract,” and another $49 million of SG&A costs when it calculated its pro forma earnings.

Unfortunately, market analysts play along with these shenanigans and ...

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