Tuesday, January 8, 2019
A Look at Climate Change Disclosures

Wednesday, January 2, 2019
Quants: Point-in-Time Data for Backtesting

Friday, December 28, 2018
Now Showing: Controls & Procedures

Thursday, December 27, 2018
A Reminder on Non-GAAP Reporting Rules

Monday, December 17, 2018
Researching PG&E’s Wildfire Risk

Wednesday, December 12, 2018
Tracking Brexit Disclosures

Thursday, December 6, 2018
Campbell Soup: Looking Behind the Label

Sunday, December 2, 2018
SEC Comment Letters: The Amazon Example

Wednesday, November 28, 2018
Measuring Big Pharma’s Chemical Dependency

Monday, November 26, 2018
Analysts, Can You Relate? A True Story

Monday, November 19, 2018
Digging Up Historical Trend Data: Quest Example

Sunday, November 11, 2018
Cost of Revenue, SG&A: Q3 Update

Monday, November 5, 2018
Lease Accounting: FedEx vs. UPS

Saturday, November 3, 2018
New Email Alerting Powers

Wednesday, October 31, 2018
PTC and Two Tales of Revenue

Tuesday, October 30, 2018
10-K/Q Section Text Change Detection

Sunday, October 28, 2018
Finding Purchase Price Allocation

Sunday, October 21, 2018
Charting Netflix Growth in Three Ways

Wednesday, October 17, 2018
Interesting Data on Interest Income

Thursday, October 11, 2018
The Decline of Sears in Three Charts

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Last month we published an in-depth look at non-GAAP reporting of net income, examining the earnings releases of 816 companies that included some non-GAAP measure of their 2015 profits. The headline was that non-GAAP metrics led to net income $164.1 billion higher than net income according to “traditional” Generally Accepted Accounting Principles.

The eagle-eyed Jack Ciesielski, publisher of the Analyst’s Accounting Observer and an expert on non-GAAP data, discovered we had some duplicate listings in our original data—not enough to change any of our conclusions about what is driving non-GAAP net income (adjustments for equity pay, acquisition costs, and restructuring charges), nor about which industries account for the largest amount of adjustments (finance and IT).

Still, Ciesielski is one of the sharpest thinkers about financial reporting out there. So when he questioned our data, we decided to do a close look at non-GAAP net income specifically among the S&P 500 and compare that to the $164.1 billion we originally found.

Yep, we were wrong—just among the S&P 500 alone, non-GAAP net income is actually way higher.

Those non-GAAP adjustments increased reported net income by $202.1 billion. Average adjustment was an increase of $582.6 million, and the prize for largest increase goes to Apache Corp., which adjusted its net income upward by $22.99 billion.

An honesty award goes to Berkshire Hathaway, whose non-GAAP net income adjusted the numbers downward by $6.7 billion. In fact, 41 of the S&P 500 published non-GAAP net income that led to lower numbers than traditional GAAP.

As always, we stress that non-GAAP metrics are not prohibited by federal securities law. A company must simply demonstrate that the non-GAAP metric it wants to use does indeed convey useful information to investors, and it also must reconcile that non-GAAP metric back to the closest comparable GAAP measurement. (In this instance, non-GAAP net income must be reconciled to net income.)

Calcbench has been calculating our non-GAAP estimates by looking at those reconciliation statements. Our original report, examining 816 filers and arriving at the $164.1 billion number, included some of the S&P 500, but not all. The $202.1 billion is for the 500 companies currently in the S&P 500.

The Securities and Exchange Commission has been talking about non-GAAP for most of this year, warning that companies have taken the practice too far—either by concocting non-GAAP metrics that don’t convey useful information, or by stressing those non-GAAP metrics over traditional GAAP. (“Excluding reality, we had a great quarter!”) In May the SEC published fresh guidance on what is permissible, and we expect more discussion throughout 2016. Calcbench, of course, will be follow it all closely.

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