On Thursday, software maker Sybase (NYSE:SY) reported better-than-expected earnings for its second straight quarter. In Q1 2005, the company "beat by a penny." Its reported pro forma earnings of $0.22 per diluted share were one cent better than Wall Street had expected. In Q2, the company did even better, reporting $0.27 per share pro forma vs. the Street's expected $0.23. That amounted to a 50% increase in pro forma profits over the year-ago quarter.

When judged according to generally accepted accounting principles, Sybase scored well, but not quite so well. The company netted just $0.17 in diluted earnings per share (as GAAP defines the term), which amounted to only a 31% increase over last year's $0.13 per share.

Year-to-date, the story reads similarly. This year's pro forma number was $0.49 vs. last year's $0.36. Sybase's GAAP net profit for 1H 2005 was $0.31 vs. $0.26 last year. Once again, the increase looks more striking when viewed without GAAP.

Although I'm ordinarily inclined to criticize companies that boast of their performance under pro forma standards (which they get to set), I won't do that in Sybase's case -- at least not this quarter. The company's cash flow statement backs up Sybase's assertion that it actually generates much more cash than GAAP standards indicate. Through the first six months of 2005, GAAP has Sybase earning $26 million in profits, and pro forma ups that to $35.6 million. But Sybase's cash flow statement shows that the company really generated $90.5 million in free cash flow.

Double that number to project the company's likely run rate for full-year 2005, and Sybase currently sports a most attractive price-to-free cash flow ratio of just 10.6, and a positively cheap enterprise value-to-free cash flow ratio of just 8.2.

I need to mention a very small part of Sybase's business -- its Financial Fusion subsidiary, which competes against the likes of S1 (NASDAQ:SONE) and Corillian (NASDAQ:CORI) in marketing online banking services to large banks. Last quarter, Sybase reported its numbers in a format that showed Financial Fusion as its only money-losing division.

This quarter, Sybase changed its reporting format (compare the two sets of charts here and here), making it impossible to tell how much money Financial Fusion made -- or lost -- for Sybase's shareholders. This switcheroo makes Sybase's business less transparent to investors. Regardless of whether Sybase is intentionally playing a game of "hide the losses," the company should reverse this change.

Fool contributor Rich Smith owns shares of Corillian, but not of the other companies named above. The Fool has a disclosure policy.