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Séminaire

Using Pro forma earnings to predict future cash-flows

vendredi 15 septembre 2017

Séminaire
Using Pro forma earnings to predict future cash-flows : The impact of subtotal earnings and income statement presentation.

Bio
 
Thomas Jeanjean Professeur à l’ESSEC au sein du département Comptabilité - Contrôle de gestion depuis septembre 2010. Après avoir été en poste sur le campus de Singapour, il a été vice-doyen du corps professoral de mars 2012 à juillet 2014 avant de devenir directeur de la Formation Continue.
 
Ses recherches portent sur le gouvernement d’entreprise, la communication financière et des manipulations comptables. Ses articles ont été publiés dans des revues académiques comptables (comme: European Accounting Review, Contemporary Accounting Research, Journal of Accounting and Public Policy) et de management (Journal of International Business Studies, Journal of Business Ethics). Thomas a été président de l’Association Francophone de Comptabilité (AFC, 2015-2017).
 
 
Abstract
 
Two sets of earnings coexist for a given firm: earnings provided by databases and adjusted earnings as disclosed by managers in press releases (Pro forma earnings). In the first case, while net income is always IFRS net income, databases can provide subtotal earnings (Ebitda and operating income) by a direct coding from the income statement when the firm uses a disaggregated or multiple step income statement or by their own calculation when the firm opts for an aggregated or single step income statement.
 
This paper focuses on the usefulness of Pro forma earnings. First, we investigate whether three Pro forma earnings (Pro forma Ebitda, Pro forma operating income, Pro forma net income) have a superior predictive ability over their database counterpart measures. Second, we take into account the format of income statement presentation (disaggregated or multiple step income statement versus aggregated or single step income statement) to investigate if the information disaggregation improves the usefulness of the performance measures provided. By using a sample of French firms over the (2007-2015) period, we find that managers strategically disclose Pro forma earnings.
 
Next, we investigate whether Pro forma metrics have a superior ability over database measures to predict future operating cash-flows. We find that adjustments proposed by managers do not significantly improve the predictive ability of database measures but for
operating income. Further, we show that operating income Pro forma adjustments are useful
only when firms disclose aggregated income statements. This is consistent with Pro forma
disclosure being substitute a detailed income statement.

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