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Using Pro Formas in Financial Reporting

Bryan Frey's Profile

How receptive have you found your boards to pro forma reporting in their board reports?


Mark Stokes
Title: CFO
Company: Private
(CFO, Private) |

We couldn't live without pro forma financials at our board - they would crucify us. GAAP just doesn't tell the story of our business (does it tell anyone's?). So we use pro formas to show what we think the appropriate groupings and arrangements are on the financial statements, along with presenting metrics based on those pro formas. We *always* put GAAP financials in the backup slides so there is no question that we are running the company's "distributed" numbers according to GAAP, but GAAP is not sufficient in and of itself.

Topic Expert
Barrett Peterson
Title: Senior Manager, Actg Stnds & Analysis
Company: TTX
(Senior Manager, Actg Stnds & Analysis, TTX) |

I agree GAAP is poorly suited for management. Grouping and detail is better addressed with non-GAAP presetations. Publically reported pro-formas often depart from reality by ignoring some items, or introducing a measure of uncertain quality. My experiece is positive with internal measures, but much less so than publically reported ones, which are often designed "to sell".

Mark Stokes
Title: CFO
Company: Private
(CFO, Private) |

I certainly agree with Barrett that there is some "pro-forma abuse" out there. Which just goes to show that numbers are meaningless without study and understanding. Whether GAAP or otherwise, you must read and understand what is being presented. If you don't understand, it's likely that it's not your fault - they are trying to hide something from you. I think the best practice is to take no financial data at face value. Just like the Wizard of Omaha (Warren Buffett), read it all and go deep.

Topic Expert
Patrick Dunne
Title: Chief Financial Officer
Company: Milk Source
(Chief Financial Officer, Milk Source) |

I have yet to work at or see any business that doesn't use some form of pro-forma measuremnt to move their organizaion forward. While GAAP reporting helps in standardizing results so there are comparables in company evaluations with the market, incentives are usually tied to some pro-forma reporting that is seen to add value to the orgainizaion. EBITDA has been the most popular and most boards especially private equity owners prefer EBITDA.

Topic Expert
Keith Perry
Title: Consulting CFO and Business Operations A..
Company: Growth Accelerator
(Consulting CFO and Business Operations Advisor, Growth Accelerator) |

...seems that what is being called internal Pro-Forma was known as managerial accounting. The disconnect between GAAP and useful information isn't new, albeit the flavors of the disconnects change. Everyone does it; you have to. To rely on GAAP for management seems like wearing a Mao suit to the prom.

External Pro-Forma, with some narrow exceptions, seems like a really bad idea. GAAP is our public filter. Anything non-GAAP would seem to have significant risk associated.

Topic Expert
Wayne Spivak
Title: President & CFO
LinkedIn Profile
(President & CFO, |

You look at the 10Q & 10K's. You see a myriad of different styles presented, some specifically using known ratios (GPM, NPM, etc) others absent. Some have enough info for you to determine ratio's others not.

If we're going to use GAAP, why not standardize on public reporting and also include Pro-forma's so we, the investing public get to see what they, the management sees.

Isn't that really FULL-DISCLOSURE?

Topic Expert
Randy Lewis
Title: Managing Partner
Company: LP Valuation, LLC
(Managing Partner, LP Valuation, LLC) |

that it would be very difficult to do a board presentation without some foward-looking financial discussion (i.e. pro forma). If you are just going to rehash the past, what is the value of the meeting other than state law?

Furthermore, there are industry-specific measures that have greater meaning and are usually well-understood by board members. Same-store sales in retail, book-to-bill for foundries, etc.

Wayne, I agree it would be nice as part of public disclosure to include pro-forma info, but many smaller public companies lack visibility. I have worked with many public companies over the years and many of their SEC attorneys would have heart attacks if they released pro forma info from their own mouths. It just depends on the company.


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