NonGAAP

Non-GAAP measures are financial metrics that supplement, rather than replace, results prepared in accordance with GAAP (Generally Accepted Accounting Principles). They adjust GAAP figures by excluding items management believes are non-recurring, unusual, or not indicative of ongoing operations.

Common examples include adjusted EBITDA, adjusted net income, free cash flow, and organic revenue growth. Companies may also present non-GAAP metrics such as constant currency revenue or non-GAAP operating income. These measures are often labeled in ways that signal they are non-GAAP, such as “adjusted,” “non-GAAP,” or “pro forma,” and they are typically accompanied by a reconciliation to the corresponding GAAP measure.

The stated purpose of non-GAAP measures is to provide additional insight into a company’s core operating performance, cash generation, or profitability by excluding items that management views as non-operational or non-recurring. They are widely used in earnings releases, investor presentations, and financial guidance, especially in sectors with frequent acquisitions or capital-intensive activities.

Regulatory and reporting considerations vary by jurisdiction. In the United States, public companies that present non-GAAP measures must provide a reconciliation to the most directly comparable GAAP figure, avoid misleading presentations, and ensure consistency in definitions. Regulators emphasize transparency and caution against using non-GAAP metrics to obscure GAAP results or to create a more favorable impression.

Critics argue non-GAAP measures can hamper comparability across companies and periods, rely on management’s judgments, and obscure the true economic picture if not properly reconciled and adequately disclosed. Proponents contend they help investors evaluate performance by focusing on ongoing operations and cash generation.