• Describe pro forma income and the importance of pro forma income in the evaluation of...

• Describe pro forma income and the importance of pro forma income in the evaluation of the income statement. Choose at least two items that are excluded from pro forma income. Suggest to management why including the items would be misleading to investors and creditors.

Expert Solution

Pro forma income statements provide an important benchmark or budget for operating a business throughout the year. For example, they can determine whether expenses can be expected to run higher in the first quarter of the year than in the second.

Essentially, a pro-forma financial statement can exclude anything a company believes obscures the accuracy of its financial outlook and can be a useful piece of information to help assess a company's future prospects. ... Some companies therefore strip out certain costs that get in the way.

Because many times it may give false hopes to the creditors and can mislead them regarding assurity of their money

ekkarill92 answered 2 years ago

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