Companies Report More Conservative Pro-Forma Earnings
Although the Securities and Exchange Commission (SEC) has warned investors about relying on pro-forma earnings, some well-known companies still reported earnings with these numbers during the second quarter reporting season. But statistics show a smaller number of companies are using pro-forma earnings, and the gap is narrowing between these earnings and those calculated according to generally accepted accounting principles (GAAP).
Here are the statistics:
- Altogether, 94% of S&P 500 companies have already reported second quarter earnings. Of these companies, Thomson First Call calculates that 214 reported GAAP earnings, 220 reported operating earnings, and 37 reported on a pro-forma basis.
- Of the companies that reported pro-forma earnings, Zacks Investment Research calculates that 39.3% came in above GAAP, a drop from 44.6% in first quarter.
- According to Thomson First Call, eleven S&P 500 companies have switched from pro-forma to GAAP since the beginning of the year.
Nick Raich, director of research at Zacks attributes the decline in the percentage of companies whose pro-forma earnings exceeded their GAAP earnings to a trend toward more conservative reporting practices.
"Many companies were pushing the envelope towards the end of the 1990s and early 2000s," explains Mr. Raich, "but we've noticed that there has been a shift towards companies becoming more conservative."
Voice of the Editor
Which isn’t completely true. I mean, occasionally I drop by when I manage to sneak out of the nonstop frat party over at Going Concern, but I’m mostly a wallflower over there. I’m happy to say that I’ve been given express permission (or explicit orders, if you like) to wander over here to AccountingWEB more often.
Why is that, you might ask? My job is to replace the irreplaceable Gail Perry as Editor-in-Chief. What does that mean? I don’t really know! I think it’ll be fun getting a feel for things, throwing in my own thoughts here and there, and listening to the discussions you’re having about the accounting profession.