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    Pro Forma Financial Statements

    Pro forma financial statements are financial statements that are prepared using hypothetical amounts or estimates and excludes extrao-ordinary or one time items. They may also be prepared to show the expected results of a future change, such as a merger or acquisition. In most cases, company's prepare pro forma financial statements to present a picture of what the company's financial picture would look like without extraordinary items. The intention is to more accurately represent the companies financial picture if the pro forma statements were used to project or estimate the company's future performance. Companies feel that pro forma statements are more representative when it comes to valuing the company. 

    Common items that are excluded form pro form income statements include depreciation, amortization, restructuring and merger costs, interest and taxes, stock based compensation, and one time expenses. Depreciation and amortization are often excluded because they do not reflect a cash expense. One time expenses are often excluded because they distort an accurate picture of the firm's future profitability. Since pro forma statements are not required to follow GAAP, the lack of regulation makes them much more susceptible to manipulation. 

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