Adjusted Earnings and Non-GAAP Figures
Companies frequently present adjusted earnings that exclude selected costs. Sometimes this genuinely clarifies performance, and sometimes it flatters it.
Why this matters for beginners
Press releases lead with adjusted figures. Knowing what was excluded, and how often, determines whether that number is useful.
Main explanation
Standard accounting figures follow required rules. Adjusted figures remove items management considers unrepresentative, such as restructuring costs or acquisition expenses.
Adjustments can be reasonable. A genuine one-off legal settlement may obscure the underlying trend and excluding it aids comparison.
The warning sign is repetition. Restructuring charges every year for five years are an ongoing cost of the business, not an exception.
Excluding share-based compensation is the most common adjustment and the most misleading, because it transfers real ownership away from existing shareholders.
Example using a real company
A company reports adjusted profit of 200 and standard profit of 80. The difference is mostly share-based pay, which is a real cost to owners.
- →Reasonable adjustment: a single litigation settlement in one year.
- →Questionable adjustment: restructuring charges recurring annually.
Common beginner mistakes
- ✕Using adjusted figures without reading the reconciliation.
- ✕Accepting excluded share-based pay as a non-cost.
- ✕Comparing one company's adjusted figure with another's standard figure.
Key terms
- GAAP or IFRS earnings
- Profit reported under required accounting standards.
- Adjusted earnings
- Profit after excluding items chosen by management.
- Reconciliation table
- The disclosure showing each adjustment made.
Key takeaways
- 01Always read what was excluded and why.
- 02Recurring adjustments are ordinary costs.
- 03Share-based pay is a real cost to shareholders.
Check yourself
- 01Adjusted earnings exclude items chosen by management.
- 02Charges labelled one-off that appear every year are genuinely exceptional.
- 03A reconciliation table shows exactly which items were excluded.
Try the concept on a real company
Choose a company in the Analyzer that reports adjusted earnings and compare the adjusted figure with the standard one.
Educational examples only. Not buy or sell recommendations.