Non-GAAP measures

From ACT Wiki
Jump to navigationJump to search

Financial reporting - accounting principles.

Non-GAAP measures are amounts calculated and disclosed by management that supplement the reporting and disclosures required by law and financial reporting standards.

Non-GAAP disclosures must:

  • Be reconciled with related GAAP measures and
  • Not be misleading.

Examples include non-GAAP earnings.

The non-GAAP measures defined and presented by the management are sometimes described as comparable, underlying or adjusted figures.

The related figures - with which the non-GAAP measures are reconciled - are often described as reported figures.

Non-GAAP measures are also known as alternative performance measures (APMs).

All such measures should be treated with caution, as management may - consciously or unconsciously - be influenced to present figures in ways that reflect well on its own performance.

Moreover, different reporting entities may define and report non-GAAP measures in different ways, meaning that they are not comparable between different reporting entities (even though the measure in question might have exactly the same name).

Alternative performance measures - examples
"The Group’s performance is assessed using a number of financial measures which are not defined under IFRS and are therefore non-GAAP (or alternative) performance measures. These are set out as follows:
  • CER is a measure which allows management to identify the relative year-on-year performance of the business by removing the impact of currency movements which are outside of management’s control.
  • Margin percentages (which are calculated by dividing the relevant profit figure by revenue) for each of the relevant profit metrics provide management with an insight into relative year-on-year performance.
  • Adjusted profit measures, as described in note 1(c) to the consolidated financial statements, are believed by the Directors to enable a reader to obtain a fuller understanding of underlying performance since they exclude items which are not reflective of the normal course of business...

The key adjusted profit measures comprises adjusted operating profit.
Adjusting items (which are excluded to arrive at adjusted performance measures) are also described on the face of the income statement and in note 7 to the consolidated financial statements.
  • Adjusted earnings per share measures are derived from adjusted profit after tax with the rationale for their use being the same as for adjusted profit metrics and are reconciled to their IFRS equivalent in note 11 to the consolidated financial statements.
  • Free Cash Flow is defined on the face of the consolidated cash flow statement and provides management with an indication of the amount of cash available for discretionary investing or financing after removing capital related items."
Abcam plc - Annual Report - 2020.

See also