Using Pro Formas in Financial Reporting

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.

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".

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.

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.

...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.

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?