Posted in Finance, Accounting and Economics Terms, Total Reads: 365
Definition: Non-GAAP Earnings
GAAP or generally accepted accounted principals are followed by companies to present their financial performance details. Non-GAAP earning is an alternative method of measuring the performance of the company. Companies usually supplement their GAAP earnings with their Non-GAAP earnings. Such departure from GAAP principles is explained by the companies as - management gets an alternative and better way of representing the company’s true performance.
For example – GAAP asks companies to represent their earning as Earnings before interest and Tax, however it is common for companies to represent their earnings as Earnings before Depreciation, interest and tax (EBITDA). EBITDA gives a better picture of cash flow for the company as depreciation is a non-cash expense. Free cash flow to the firm and core earnings are other examples of Non-GAAP earnings.
Regulations mandate the companies to follow GAAP to report their financial performance to ensure a common standard being followed by companies across industries. The uniformity of information helps the potential user to compare the performance of companies easier and more accurate.