Article: http://online.wsj.com/article/SB10001424127887323610704578628242628298324.html
I read an article in The WSJ about Amazon’s most recent earnings release. I wanted to see how pro forma reporting would change the amounts currently and if I would perceive the company’s earnings differently. If amazon excluded interest expenses, losses on equity investments, stock-based compensation expenses, amortization of intangible assets and write-downs for impaired assets today where would it stand?
In the July release for the Income Statement three months ending June 30th shows a net gain before taxes of $17 million. Subtracting the added expenses of interest expenses and stock-based compensation Amazon would have decreased operating expenses by $298 million, coupled with eliminating $33 million in interest expense gives a net gain before taxes of $286 million.
In our case we mentioned that Amazon used this method to give a better understanding of cash flows and not just the bottom line. Having a better idea of where cash is going helps me understand that the company is making all excess capital work and are constantly building the business. Amazon may not use the pro forma method now but seeing it being put to use currently I can grasp what they were trying to do. When I see a company at a net loss over half of their net sales I want to dismiss the company as not profitable or underperforming.
For a company that is growing year after year, quarter after quarter, uninformed investors need to understand where the money is really going. I believe pro forma help investors focus on that aspect.
References:
http://blogs.wsj.com/digits/2013/07/25/amazons-earnings-what-to-watch-today/?KEYWORDS=amazon
http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol-newsArticle&ID=1841314&highlight=