Tag: Street earnings

Are non-GAAP financial measures still problematic?

A couple of years ago, the SEC made a big push—through a series of staff oral admonitions and written guidance, as well as one enforcement action—toward requiring issuers to be more transparent and more consistent in the use of non-GAAP financial measures and to avoid altogether non-GAAP measures that were misleading. For example, companies were advised that they needed to present GAAP measures with equal or greater prominence relative to the non-GAAP measures.  (See, e.g., this PubCo post.) And, as this article revealed, according to Audit Analytics, in 2016, over 25% of the companies in the S&P 500 index had shifted their presentations to put GAAP at the top of their quarterly earnings releases and 81% made GAAP numbers most prominent, compared with only 52% for the prior quarterly earnings releases. (See this PubCo post.)  By the end of 2017, the SEC was apparently sufficiently satisfied with the response that the pendulum had swung back, and there was less staff focus and comment on non-GAAP financial measures.  (See this PubCo post.) But is that really the end of the story? How “good” are the numbers that are fed to investors?