Go to Jeff Salisbury LWGate Home Page.From: Spencer48@aol.com
Subject: Re: [CANSLIM] EPS Rating vs Actual EPS Numbers
Date: Tue, 29 Jan 2002 21:37:35 EST
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Katherine:
Tomorrow's "Ask WON" in IBD.com talks about pro forma accounting. WON
defines and explains pro forma accounting from a CANSLIM perspective (ie. as
to what he views as important in what pro forma leaves out and what it
includes.)
"Ask Bill O'Neil Archives, Tuesday, January 29, 2002--
'Could you define and discuss a term much in the news lately: pro forma
accounting? " - Submitted from Kankakee, Ill.
Answer: Pro forma accounting was a term that first came into widespread use
during the dot.com bubble. Pro forma accounting is not compliant with
Generally Accepted Accounting Principles (GAAP), and sometimes excludes basic
cost such as marketing and interest. The main objective of pro forma earnings
is to demonstrate true operating earnings. However, it is up to management to
decide what expenses are really part of ongoing operations. The risk here is
that some expenses are overlooked or classified as nonoperating, and thus not
included in pro forma results. In addition, pro forma statements are usually
unaudited. Nevertheless, pro forma has gained in use because many companies
use it as a way to convey how their core operations have been performing, and
they argue that line items such as goodwill expense, or stock options, may
hide the true growth in earnings of the their core operations. Furthermore,
many companies are under intense pressure to make their earnings numbers, or
to turn a profit, so they have relied on pro forma earnings to give them an
edge. Wall Street has accepted the use of pro forma earnings because they,
like the companies they follow, are constantly trying to find inflection
points in company reports where a company's core operations have just begun
to change"
jans
In a message dated 1/29/2002 4:14:32 PM Eastern Standard Time,
kmalm@earthlink.net writes:
<<On EXPE in particular, you have discovered the wonders of proforma
reporting. DGO uses proforma and so you will notice that their numbers are
POSITIVE! Last 4 quarters are proforma EPS positive. Prior 4 quarters
proforma are negative. BUT cashflow *is* positive. (See attached) Dig into
the financials and you will find where the one time expenses are being
eliminated.
Katherine
>>
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