Non-GAAP Measures

DEFINITION

A non-GAAP measure is any financial metric a company reports that is not directly defined by GAAP — typically created by adjusting GAAP numbers to exclude items management considers non-representative of underlying performance (stock-based compensation, restructuring charges, impairments, M&A costs). SEC Regulation G requires reconciliation back to the most comparable GAAP measure and prohibits giving non-GAAP measures more prominence than GAAP.

WHY IT MATTERS FOR RETAIL INVESTORS

Non-GAAP measures are how companies tell their preferred story. Most exclude stock-based compensation — which is a real recurring economic cost. The biggest red flag is when a company starts adjusting out a 'one-time' item that recurs year after year (cybersecurity costs, restructuring charges, litigation reserves). Always reconcile back to GAAP yourself, and ask: would I underwrite this investment using the GAAP number?

RELATED TERMS

• GAAP
• EBITDA
• Earnings Release