non-GAAP
Financial metrics that do not conform to Generally Accepted Accounting Principles, used by companies to present financial results in ways they believe better reflect business performance.
Example
“Tech companies often report non-GAAP earnings excluding stock-based compensation — sometimes making losses look like profits.”
Memory Tip
NON-GAAP = the company's custom earnings metric. Often more flattering than GAAP. Compare carefully.
Why It Matters
Non-GAAP metrics matter because companies use them to attract investors and appear more profitable than standard accounting shows. Understanding the difference between GAAP and non-GAAP numbers helps you make better investment decisions and avoid being misled by overly optimistic company reports.
Common Misconception
Many people assume non-GAAP numbers are somehow fraudulent or intentionally deceptive, but they are actually legal and often useful supplementary information. The real issue is that companies may exclude unfavorable items to paint a rosier picture, so you should compare both GAAP and non-GAAP figures rather than relying on just one.
In Practice
A technology company reports GAAP net income of 2 million dollars but advertises adjusted EBITDA of 50 million dollars by excluding stock-based compensation, one-time restructuring costs, and depreciation. An investor comparing only the adjusted number might think the company is much healthier than it actually is when viewing the GAAP results that include those real business expenses.
Etymology
NON (not conforming to) GAAP (Generally Accepted Accounting Principles). Metrics OUTSIDE of GAAP standards.
Common Misspellings
Small business accounting made simple
Related Terms
More in accounting
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See Also
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