Monday, May 20, 2019
Research Paper: Capex Spending

Thursday, May 16, 2019
Psst: Got Any Weed?

Wednesday, May 15, 2019
Open Letter: SEC Proposed Rule for BDCs

Friday, May 10, 2019
General Motors and Workhorse

Monday, May 6, 2019
How to Find Earnings Release Data

Tuesday, April 23, 2019
Following Restructuring Costs Over Time

Monday, April 22, 2019
Capex Spending: More Than You Might Think

Saturday, April 13, 2019
When AWS Takes Over the World

Thursday, April 11, 2019
Data Trends in Focus: Restructuring Costs

Sunday, April 7, 2019
How One Customer Crushed It With Calcbench

Thursday, April 4, 2019
TJX Shows Complexity of Leasing Costs Reporting

Tuesday, April 2, 2019
CEO Pay Ratios: Some 2018 Thoughts

Wednesday, March 27, 2019
Corporate Spending: Where It Goes, 2017 vs. 2018

Monday, March 25, 2019
Health Insurers: A Bit Winded?

Friday, March 22, 2019
Our New Master Class Video

Thursday, March 21, 2019
Tech Data’s Goodwill Adjustment

Tuesday, March 19, 2019
There’s Taxes, and There’s Taxes

Saturday, March 16, 2019
Adventures in Tax Cuts and Net Income

Monday, March 11, 2019
Big Moves in Goodwill, Intangible Value

Friday, March 8, 2019
CVS, Goodwill, and Enterprise Value

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Game recognizes game, so we would be remiss if we did not note a new paper from Jack Ciescielski, publisher of the Analyst’s Accounting Observer, examining trends in how companies report non-GAAP metrics.

You might recall that angst over non-GAAP reporting (that is, reporting financial metrics that do not follow U.S. Generally Accepted Accounting Principles) was all the rage in 2016. The SEC launched a campaign to remind filers of how non-GAAP can violate Regulation G, and to discourage abuses of non-GAAP reporting that might confuse investors about a filer’s true financial picture. Corporate governance enthusiasts fretted that non-GAAP metrics were becoming a bad habit. Heck, even Calcbench published a study and a few posts about just how much non-GAAP can distort “true” metrics like net income.

Ciescielski has now returned to the subject, with a long look at the prevalence of non-GAAP metrics and how financial analysts should assess a company’s use of them. The article is in the latest edition of the Financial Analysts Journal, and we should also give a shout-out to Ciescielski’s co-author Elaine Henry.

So what did Ciescielski have to say on the subject?

First, while more S&P 500 companies are reporting non-GAAP met income in the last five years, and the total dollar value of those non-GAAP adjustments has more than doubled; the percentage of change from GAAP-approved net income has held steady. Non-GAAP net income was 22.8 percent higher than net income in 2009, and 21.9 percent higher in 2014.

Second, while non-GAAP net income adjustments might hold steady within a certain industry sector (many tech companies adjust for equity-based compensation, for example); the adjustments among sectors can vary widely. That harms an investor’s ability to compare financial results across multiple industry sectors.

Ciescielski and Henry then offer seven ideas for how financial analysts can assess non-GAAP metrics more effectively, from challenging management and questioning motives, to not waiting for regulators to crack down on non-GAAP abuses.

The paper is chock-full of data, and well worth your time if you’re a financial analyst looking for a better sense of how to use (or avoid) non-GAAP metrics in your decision-making.

The only shameless self-promotion Calcbench will do today is to note that non-GAAP earnings are typically presented—and reconciled back to GAAP-approved earnings—in an earnings press release. You can study filers’ earnings press releases to your heart’s content in our databases, including reconciliation back to plain old GAAP.

Then you can get make more informed decisions. Forewarned is forearmed.

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