Although there are many useful financial tools to evaluate a firms value, pro forma earnings reports can give a clearer picture of a firms earnings and outlook. Investors find pro forma earnings more valuable during mergers of firms, creating a uncertainty of the firm's earnings, which would reflect poorly on the market share. A more informative and value relevant measure of extracting challenging valuations of a firm's numbers would allow shareholders to make a better decision and better insight in a firm's future.
For shareholders to perceive pro forma earnings of value relevance, a firm's key intention is to be able to report a most accurate prediction of future inflow of income for the company with the least amount of obscurity. This means that the reporting is reliable in that measures have not been manipulated just to present the company’s pro-forma earnings in the best way.
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Whether it is due to the timely relevance or the degree in which items reflect the firms’ future performance.
Value relevance of accounting data has been largely investigated in accounting in order to determine the efficiency of financial information to investors (Papadaki and Siougle, 2007). The main goal of any firm when providing financial accounting reports is to present to the external parties information that is appropriate and efficient to enable shareholders to determine the firms current and future profitability, as shareholders are considered the most important faction of decision makers, so it is a firms priority to demonstrate value relevant pro forma earning reports to aid with their decision