Pro-Forma Earnings

  

Categories: Accounting

Two companies combined.

Whatever.com had $80 million in earnings; something.com had $100 million in earnings. Their pro forma earnings? $180 million. That's this year, as they're combined.

But this is when the fun begins. With various synergies: more market power, bigger volume discounts when buying supplies, firing of repetitive infrastructure...and next year, on the same revenues, instead of $180 million, the combined company has $230 million, or something sweet like that.

Just don't talk about it in front of the legions of fired employees.

Related or Semi-related Video

Finance: How do you forecast earnings?4 Views

00:00

and finance Allah shmoop How do you forecast earnings All

00:07

right we'LL ask an old Wall Street warhorse and you'LL

00:10

get the joke about first putting on blindfolds spinning around

00:13

three times and sniffing for a donkey's butt Yeah but

00:16

the process really isn't that opaque You own a football

00:22

stadium a small one seat seven thousand people and caters

00:26

to a large pacifist organisation that loves the game but

00:30

wants to see tackles replaced by light feathery taps You

00:34

have football if you can still call it that in

00:37

the fallen winter Baseball in the summer a few concerts

00:40

weddings and bar mitzvahs Owen A rodeo or two You

00:43

only sell seeds for anything about one hundred days a

00:46

year like you don't sell many Tuesday nights in the

00:49

winter And City Ordinance doesn't allow you to sell tickets

00:52

in the summer when the weather forecast is supposed to

00:54

be over one hundred degrees because your power grid usage

00:58

would then blow out the city's electricity Your average seat

01:01

ticket net to you is thirty bucks net because you

01:04

pay five dollars commission to StubHub Ticketmaster and while other

01:07

vendors to market your local wears so they retail for

01:10

thirty five each but you keep thirty and on average

01:13

when you do sell a night you sell five thousand

01:15

tickets The stadium is rarely sold out so it plunks

01:19

along with a total of one hundred nine times five

01:21

thousand seats on average sold which is a total of

01:24

El half A million seats Seat units sold per year

01:27

at an average ticket price of thirty bucks to you

01:30

Well revenues last year were about fifteen million dollars In

01:33

addition you sell recycled but boiled horse hooves which you

01:37

call hot dogs along with Coke Fear popcorn and Candy

01:40

Floss which is actually floss you can use to get

01:43

those horse hooves out of your teeth They really stick

01:45

in there at another two million bucks in revenue for

01:48

all that stuff And that's what you had in revenues

01:50

last year Well what about costs Well when you had

01:52

your light hitting baseball in football teams you had to

01:55

pay licensing fees for them Tio you know show up

01:58

of three million dollars a year for the other events

02:01

like concerts and weddings and bar mitzvahs He only had

02:04

incremental cleanup costs for beer spillage and vomit of about

02:08

two million dollars And your quote food unquote costs were

02:11

another million You had insurance electricity legal and well other

02:16

bills totaling another million box You had total expenses then

02:20

of seven million dollars and made pretax ten million dollars

02:24

So you had total expenses of seven million box He

02:26

had seventeen million of revenue with seventeen money Seven Its

02:29

pretax ten million dollars on the set of calculations is

02:33

a kind of forensic starting place in forecasting future earnings

02:36

And you start with a spreadsheet This thing like Well

02:39

what happens to pre tax profits if you can average

02:42

thirty four dollars a ticket instead of thirty a ticket

02:45

Well there you go What if you average fifty eight

02:47

hundred seats sold instead of five thousand OK well we're

02:51

trying to forecast earnings here So is that what you

02:53

think you'LL actually earn Or just what you hope you'LL

02:57

earn Well forecasting earnings is all about being real not

03:00

hopeful Meaning you try to be porridge Not too hot

03:04

not too cold but actually accurate So if you're suddenly

03:07

going to grow from five thousand to fifty eight hundred

03:11

seats on average sold over one hundred ninety year than

03:14

What changed Did Amazon build a new warehouse in the

03:17

neighbourhood Do you expect many tall women to be attending

03:20

ballparks now Is Oprah showing up to every event and

03:24

giving out free human days What happened Maybe there's a

03:27

new popular glow in the dark cotton candy that actually

03:29

makes you glow in the dark It doesn't glow but

03:32

it makes you glow You make another mil for selling

03:35

it or you think you will Maybe Well how do

03:37

you forecast What data do you put in What assumptions

03:40

did you make Well in this sense the qualitative factors

03:43

that make up your predictions are everything in that the

03:46

numbers well that you just randomly type in could be

03:49

almost anything But if they're not accurate numbers or reflective

03:52

of well the nation's new love affair with pickled horses

03:55

or whatever is driving you to new heights and profitability

03:58

well than it best there just hopes Nay pipe dreams 00:04:02.493 --> [endTime] Yeah don't do that

Up Next

Finance: What are the economics of a good merger? (2.0)
2 Views

What are the economics of a good merger? The economics of a good merger need to show how profits and benefits will outweigh costs. A good merger wi...

Finance: What is Earnings Quality?
50 Views

What is Earnings Quality? Earnings quality refers to a company’s tangible earnings from sales or reduced expenses as a result of management decis...

Find other enlightening terms in Shmoop Finance Genius Bar(f)