How do investors use this information?

Non-GAAP financial measures and KPIs give companies flexibility to portray elements of their unique story by supplementing their GAAP results with information on how the company internally evaluates its performance. This information can be helpful to investors in predicting future cash flows and valuing companies. However, in order for these non-GAAP financial measures or KPIs to be useful, they should be accompanied by disclosures that are transparent and explain the consistency and comparability of the measures.

Transparent disclosures can help present the non-GAAP financial measure in a “balanced” manner. In order to provide added transparency, the disclosure may include how the non-GAAP financial measure was calculated, the reconciliation to the most directly comparable GAAP amount, how the adjustments were calculated, and why the adjustments were appropriate to add back or remove. Transparent disclosures help investors understand why the adjustments were made and if the adjustments are appropriate to include in valuations or other analyses. Transparent KPI disclosures provide an explanation of how the KPI was calculated to allow investors to understand how the company measures performance.

Non-GAAP financial measures and KPIs that are calculated consistently period over period can be useful to investors. The SEC notes that, if a company changes the calculation of a non-GAAP financial measure from a prior period, the company should disclose a complete description of the change in methodology, explain why management believes the change was appropriate, and explain the impact of the change in calculation on prior periods. KPIs also should be calculated consistently period over period to allow investors to assess the company’s performance in a consistent manner. Investors should read the disclosures accompanying the non-GAAP financial measure or KPI to understand the comparability to prior years.

Investors often compare non-GAAP financial measure and KPI disclosures to those of other companies in the same industry. In order for this analysis to be relevant to investor decision making, the numbers should be comparable, or the disclosure must clearly articulate the adjustments made or relevant calculations.


The average number of non-GAAP financial measurers reported by S&P 500 companies in their first calendar quarter 2020 earnings release.

Source: S&P 500 non-GAAP financial measures statistics were calculated by the CAQ based on data provided by Audit Analytics


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