Question

Discuss the following regarding non-GAAP financial measures used in publicly held companies’ reports filed with the SEC. Don’t just give a short answer but have a discussion on each question:

1. What is a non-GAAP financial measure? Give an example of at least one non-GAAP financial measure and how it is calculated and how it is used.

Answer 1

Detail Note on NON GAAP Financial – Under SEC guideline ( in year 2016) revise its guideline on the reporting of Non GAAP financial measure . At present under SEC guidance , majority Public listed company disclose NON GAAP financial disclosure under 10 Q( Quarter Audit ( , 10k ( Annual Audit) under MD &A ( Management Discussion and Analysis ) .

This disclosure well accepted by Investor and Analyst because GAAP financial measure do not adequately capture companies value .

Most important to note under NON GAAP is eliminate ( not consider Adjusted) Uncontrollable , irrelevant by Management .

Common Non GAAP measure includes Earning before Interest, tax , depreciation and Amortization ( EBITDA) – Adjusted EBITDA and Non GAAP Income

As per SEC guideline , Publicly listed company must comply with regulation which address all NON GAAP financial disclosure Also as per 10(e) if regulation , which highlight non GAAP information and part of SEC filing .

NON GAAP disclosure normally remove certain abnormal , large unusual or non recurring transactions ( adjusted )

As per SEC guideline , regulation G , which require companies disclose reconciliation between Non GAAP vs GAAP

As per regulation G and other regulation , SEC ensure that Investor and other user if financial should not mislead by the use of NON GAAP measure and the reconciliation if non GAAP measure with direct comparable will assist user in their evaluation .

In the year 2016, SEC revised guideline in relates to disclosure of Non GAAP matter to avoid any misleading , which are as below :

1. A Non GAAP – Financial measure that is adjusting only for Non recurring charges when there are also non recurring gain in the same period
2. Presenting a full Income statement of Non GAAP financial measure – most directly comparable with GAAP measure