Pro forma (non-GAAP, adjusted) earnings are much higher than GAAP-compliant earnings. The GAAP gap is widening. Should something be done about this?
Companies make up their own metrics to define success, continuing trend of non-GAAP measures. What do you think about this? Is it “ok”?
We’ve seen this before, namely firms using non-GAAP earnings measures that make firms look better than they do under GAAP-compliant earnings. Reg G covers how firms may present non-GAAP measures. So, why is this a newly urgent problem? In your opinion, should anything new be done?
Herbalife misstated a pro forma measure that it created. In your opinion, should such disclosures (pro forma metrics) be regulated or audited?
EBBS, or earnings before the bad stuff, was cumulatively + $45 billion in energy sector in 2015. On a GAAP basis, earnings totaled a loss of $48 billion. Which reflects “reality”? Why? What should be done about this disparity, if anything?
Tech start-ups are using many non-GAAP measures to attract capital. If GAAP measures don’t very well portray new firms’ (and new types of firms’) results and prospects, is the use of non-GAAP measures a “bad thing”? Why or why not?
If analysts and users of financial information largely disregard GAAP earnings, what purpose does GAAP serve?
Would you invest in an IPO that uses non-GAAP measures? If not, why not? If yes, under which circumstances? That is, how would you determine which items are ok for the firm to strip out of GAAP earnings?
In your opinion, what are the benefits of allowing management to provide alternative performance measures (non-GAAP metrics)? What are possible costs or potential problems?
If you were the CFO of a publicly traded firm, what are some of the considerations you would make in determining whether to disclose non-GAAP, pro forma measures to shareholders and other constituents? Give an example of a non-GAAP measure that you think would be appropriate for, say, a retailer; a manufacturer.
Should firms not be allowed to use non-GAAP measures, even if they reconcile the non-GAAP measures to GAAP? Why or why not? Do you believe that market participants are confused with disclosures of both GAAP and non-GAAP measures?
Why do you suppose that analysts ignore Facebook’s GAAP-based earnings (which most recently was a net loss) and instead focus on pro forma earnings, or earnings before stock based compensation expense?
What was Sears’ GAAP earnings for the most recent quarter? Pro forma earnings? Should we ignore the “bad stuff”?
