A major problem that the analyst has in interpreting current and projecting future earnings is the tendency of companies to report so-called pro forma earnings as opposed to actual earnings computed in accordance with generally accepted accounting principles. In pro forma earnings, companies decide to ignore certain costs that are considered unusual; in fact, no rules or guidelines exist. Pro forma earnings are often called “earnings before all the bad stuff,” and give firms license to exclude any expenses they deem to be “special,” “extraordinary,” and “non-recurring.” Depending on what
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