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Proforma earnings can have significant implications on a company's financial health. They are often used by companies to present a more optimistic picture of their financial health to investors. This is because proforma earnings typically exclude certain costs or expenses that the company considers non-recurring or unusual. However, this can also lead to a distorted view of the company's actual financial health, as it may hide potential issues or risks. Therefore, while proforma earnings can provide useful information, they should be considered alongside other financial indicators and statements to get a comprehensive view of a company's financial health.
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Need to present the investment and reward opportunities of a new venture or project? Use our "Ultimate Startup Pro Forma" model to showcase a new prop...
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In his article for Harvard Business Review, Baruch Lev – the Philip Bardes Professor of Accounting and Finance at the Stern School of Business in NYU, talks about proforma as one of the ways in which managers can impart useful information to investors. (For more like this, check out our book summary). Lev stresses that "research shows that proforma earnings statements prominently displayed in the headline or first paragraph of a company's news release have a much stronger impact on stock prices than proforma earnings reported elsewhere in the document."
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