LETTERS TO THE EDITOR.Pro Forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma Stance Backed Recently you expressed your view on pro forma statements Pro forma statement A financial statement showing the forecast or projected operating results and balance sheet, as in pro forma income statements, balance sheets, and statements of cash flows. ("Let's Be Balanced With Pro Forma Earnings pro forma earnings Income not necessarily calculated in accordance with generally accepted accounting principles. For example, a company might report pro forma earnings that exclude depreciation expense and nonrecurring expenses such as restructuring costs. ," From the President, June 2001). My view is that creative accounting probably would lead to a wrong allocation of resources allocation of resources Apportionment of productive assets among different uses. The issue of resource allocation arises as societies seek to balance limited resources (capital, labour, land) against the various and often unlimited wants of their members. , since it implies better firm performance, which may be a distortion of the true potential. If the outlook is more optimistic, the P/E ratio P/E ratio Current stock price divided by trailing annual earnings per share or expected annual earnings per share. Assume XYZ Co. sells for $25.50 per share and has earned $2.55 per share this year; $25.50 = 10 times $2.55. XYZ stock sells for ten times earnings. is excessive, which means that too many financial resources are put into the stock market. The result does not reflect the true performance of the listed company and the stock market itself. Creative accounting is destructive, and you need to manage its implications. It's good that your organization is serving society well. Without accounting guidelines, firms would be out of control in presenting financial statements. Chungfoon Lau, Hong Kong Financial Executive welcomes letters. Please email them to jmarshall@fei.org or fax them to 973.538.6144, and include a daytime phone number. |
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