The August 21, 2001, issue of the Wall Street Journal included an article by Jonathan Weil entitled "Companies Pollute Earnings Reports, Leaving P/E Ratios Hard to Calculate." (Subscribers to Business Extra can find the article at that site.) Instructions Read the article and answer the following questions.

(a) At the time of the article, what was the overall P-E ratio of the Standard & Poor's 500-stock index of large companies as reported by Thomson Financial/First Call? How did that compare with the long-term historical average?

(b) What earnings measure does Thomson Financial/First Call use to calculate P-E? If, instead, the P-E was measured using earnings as reported under GAAP, what was the P-E for this index? What would this measure suggest about stock prices at the time?

(c) What are "pro forma" earnings? What other names are used for pro forma earnings? Are there any standards or guidelines for determining pro forma income? What jus- tification do companies give for reporting pro forma income?

(d) According to the article, at what point did the use of pro forma earnings "get out of hand"?

(e) What did the article cite as an example of a "start of a backlash" against pro forma earnings measures?

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