Google Watch

When Google (GOOG) first went public, the company kept telling us how different they were. They weren’t going to follow Wall Street’s rules. Yet every day it seems Google makes another concession to business as usual. Now we learn that Google will report pro-forma earnings to help analysts.

Google Inc. said it will begin reporting pro forma earnings, in addition to net income, to help analysts and investors better understand the Internet search giant’s financial figures.
The pro forma figures, which will exclude items such as charges for stock-based compensation as well as tax benefits related to stock-based compensation, will be reported alongside figures based on generally accepted accounting principles, or GAAP. The company will start the practice when it reports third-quarter earnings on Oct. 20.
“By providing both, we hope it will be easier to understand our results,” Google’s chief accountant Mark Fuchs said in a posting on the company’s blog.
However, Google’s pro forma numbers still may not agree with the figures compiled by analysts. Google noted that most analysts calculate their pro forma estimates by adding back stock-based compensation, but not adjusting for the related tax benefit.
“As a result, when we provide our non-GAAP [earnings per share] number, we may be adding back less to compute our non-GAAP earnings than will most of the analysts,” said Mr. Fuchs.

This is a good move and it will help investors. Pro-forma earnings are important because they often present a clearer picture of how well a company is doing. The problem is not pro-forma accounting, it’s the abuse of pro-forma accounting.

Posted by on October 13th, 2005 at 2:12 pm


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