How to analyze a balance sheet in <2 minutes: If you found this post useful, please repost ♻️ to share with your audience. See course details & apply coupon code here: Want to master financial statements analysis? Join me in November for my cohort-based course, Advanced Financial Statement Analysis. What do you think? Which is better to look at? Let me know below! Personally, I always look at both whenever possible, but I'm OK with using Non-GAAP accounting so long as I trust the management team.Īnd, if I don't trust the management team, I wouldn't invest in the first place. Side note: EBITDA - which stands for Earnings Before Interest, Taxes, Depreciation, and Amortization - is a Non-GAAP measure of profits since it excludes Depreciation and Amortization. (This is particularly true with companies that pay a lot of stock-based compensation, such as technology companies.) Non-GAAP accounting usually makes a company's profits look BETTER, which is why lots of management teams emphasize their Non-GAAP numbers with investors. → Paper gains / losses on investments are usually EXCLUDED → Stock-based compensation is usually NOT expensed While Non-GAAP accounting is NOT standardized, here are a few common traits: companies also choose to report "Non-GAAP" financial statements as well.Ĭompanies have much more flexibility in how they report financial statements by declaring the numbers are "Non-GAAP." This is especially true for companies that pay lots of stock-based compensation. → Paper gains / losses on investments must be includedĪ side effect of GAAP's rigid rules is that profits often look worse. → Stock-based compensation must be expensed However, GAAP accounting also has some drawbacks: → Financial reports are comparable to each other companies to use GAAP accounting has several benefits: MUST use GAAP accounting when reporting their financial statements.įorcing all U.S. companies.Īll publically traded companies in the U.S. It's the standard accounting rules and procedures used by U.S. GAAP stands for "Generally Accepted Accounting Principles."
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