Pro forma financials.

In plain English

Pro forma financials restate results using assumptions rather than strict accounting rules, either to project a future scenario or to show what the past would have looked like without particular items. Companies use them to model a merger as if it had already closed, to build a budget, or to present earnings excluding charges management considers unusual. Public companies showing non-GAAP figures must also present the closest GAAP measure and reconcile the difference. The adjustments are the interesting part, since recurring costs like stock compensation and restructuring get excluded year after year in some filings. Reading the reconciliation rather than the headline is where the actual picture lives.

01Why it matters

Pro forma numbers are the ones that appear in headlines and press releases, so if you only read those, you are reading the version of results that management chose to show.

02The math, step by step

Say GAAP net income is 4,000,000 dollars. The company adds back 3,000,000 dollars of stock compensation and 1,000,000 dollars of restructuring, reporting 8,000,000 dollars pro forma. That is double the GAAP figure, and both add-backs are real costs of operating the business.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT

04Receipts

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