Non-GAAP Earnings
GAAP stands for U.S. Generally Accepted Accounting Principles. Non-GAAP figures are "adjusted" numbers that a company calculates itself by starting from GAAP and excluding certain items, most commonly stock-based compensation, amortization of acquired intangibles and restructuring charges.
How to read it
With non-GAAP, a company is trying to show what it earns under normal operations. Most analyst estimates are on this basis too, so whether a company beat is judged on non-GAAP EPS.
The earnings press release always includes a GAAP-to-non-GAAP reconciliation table that lists, line by line, what was added back. Reading that table tells you whether the adjustments are reasonable.
The gap between the two measures is an indicator in its own right: if it widens year after year, stock-based compensation or "one-time" charges are probably showing up every year.
Common pitfalls
- Stock-based compensation is a real cost (it dilutes shareholders), and tech companies' profits look much better once it is stripped out. Using GAAP earnings for valuation is the more conservative choice.
On FinDog
The scorecard in each earnings analysis notes which basis the EPS figure uses. When a company reports both, we lead with the non-GAAP figure that is comparable to the consensus estimate and explain in the body where the difference comes from.
Read the latest analyses →Related terms
- Earnings Per Share (EPS)Earnings per share is net income divided by shares outstanding: how much profit each share earned during the period. It is the most closely watched number in any earnings report, and it is also the denominator of the P/E ratio.
- Free Cash Flow (FCF)Free cash flow is operating cash flow minus capital expenditures. It is the cash a company is genuinely free to use: for buybacks, dividends, paying down debt or acquisitions.
- Form 8-KForm 8-K is the current report a public company files with the SEC when a material event occurs, and it must be filed within four business days of the event. Quarterly earnings press releases are published as exhibits to an 8-K.