a term used to describe a standard framework of guidelines that accountants follow when recording transactions and preparing financial statements. Many companies and financial analysts use non-GAAP measures as well, and most of the time it makes the numbers look better. Better numbers for a press release is not the only advantage to non-GAAP figures, however, financial analysts also use them as a better way to gauge the growth of a company in relation to it's peers.
numbers, just go to the company's most recent quarterly or annual filing and look at the income statement. If you want to see the non-GAAP measures, you can also find them in the quarterly or annual report, as well as in press releases, and in historic and future earnings projections. Most of the time, when earnings per share are mentioned, they are qualified as either GAAP, non-GAAP or something else, but sometimes they are not properly qualified. You'll also need to ascertain whether or not you are dealing with earnings per share on a basic level, or a fully diluted level. This can also be found in the company's income statement.
industry, but generally we find things like amortization of intangibles, share-based compensation expense, restructuring charges, senior debt amendment fees and gain (loss) on extinguishment of debt, etc. etc. It is important to note that all of these expenses are very material to the future success of the company, analysts just like to use non-GAAP numbers to be able to judge the core growth prospects a little better. Company management also uses non-GAAP figures to understand, manage, and evaluate the company's business results and make operating decisions. Companies often make decisions regarding staffing, future management priorities and how the company will direct future operating expenses and so forth based on non-GAPP measures. Despite non-GAAP results also being generally accepted, we must take the time to examine what the differences are, and if there are any red flags hidden. Are non-GAPP earnings climbing or sinking with a direct relationship to GAAP earnings, or is their a discrepancy? Is the company spending too much on restructuring charges or financing expenses in relation to their non-GAPP results? What is the company's history of the difference between GAAP and non-GAAP look like in relation to it's competitors? All of these questions are worth asking, especially when looking at potential value and growth plays. If the company uses non-GAAP figures, they will generally include a table or some other easily comparable reconciliation review either in the quarterly or annual report or in a supplemental press release. This is usually an easy way to see a summary of the differences between GAAP and non-GAAP on a top line, bottom line, margin and per share basis. |
February 14, 2011 PSW Staff |
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