字幕表 動画を再生する 英語字幕をプリント Welcome to the Finance Storyteller series! In this video I am going to discuss GAAP versus non-GAAP metrics, which is the hottest topic in financial reporting. It affects the very core of a company: what is the reality of its financial performance? GAAP versus non-GAAP discussions impact investors, analysts, financial journalists, company leadership, employees, the audit committee and external auditors. A lot is at stake here! Here's an overview of how this video is built up, so you can make your choice of watching it all the way through from beginning to end, or jumping straight to the part that is of particular interest to you. First section: What does GAAP mean, and what is non-GAAP? Basically: why should I care? Second section: What are "common" non-GAAP metrics? What does it look like? Third section: Why are there concerns about non-GAAP reporting? Fourth section: Which guidance have regulators issued to improve transparency? GAAP means Generally Accepted Accounting Principles, more specifically US GAAP (the accounting standards used in the US) or IFRS (the International Financial Reporting Standards used in 126 other countries across the world). Using GAAP provides uniformity in how companies report their financial performance. Having accounting standards like US GAAP and IFRS enables you to compare the performance of companies within and across economic sectors, so the standards are necessarily generic in nature. GAAP numbers should be neutral, comparable and verifiable, and provide information that markets can trust. Non-GAAP metrics are alternative definitions of (in most cases) profitability, that are supposed to enrich the financial information that investors receive about a company's performance. In other words, free-of-charge additional information to provide insights into the company. That sounds like ordering steak at a restaurant like you always do, and getting a free side order of vegetables with it. Many companies will include a footnote that states that "non-GAAP metrics are useful to investors in their assessment of our operating performance and the valuation of our company". While the steak and vegetables analogy sounds good, a better comparison would be to use the classical optical illusion of the old woman and the young woman. What do you see? A young woman, an old woman, or can you see both? The young woman is on the left, and her gaze seems to be away from us, facing towards the top left. The old woman is in the center, with her gaze facing downward and to the left. If that is too hard to see, try the duck and the rabbit: is this a drawing of a duck with its beak on the left, or a drawing of a rabbit with its mouth on the right and its ears on the left? Having a company present you with both GAAP and non-GAAP information, is very similar to being asked to spot both perspectives in these drawings! It takes a bit of practice, and some people are better at it than others. How does one spot a non-GAAP metric? Well, the words "adjusted" and "excluding" often give it away: adjusted Gross Profit, adjusted EBITDA, adjusted Net Earnings, adjusted Earnings Per Share, Operating Profit excluding special items, Net Income excluding non-recurring items, and on and on and on. By the way, some companies don't call non-GAAP information "non-GAAP", but speak of core profitability normalized profitability, underlying profitability, or "pro forma" measures. Here's an example of a company that provides a list of non-operational items that it excludes to get to adjusted EBITDA and adjusted EPS: Verizon Communications. Its profitability according to GAAP was unusually low in 2012 and 2014, and unusually high in 2013 and 2015, mostly due to unusual charges or credits in an operating expense line called "Severance, Pension and Benefit". It was a very significant charge (or extra cost) in the range of 6 to 7 billion dollars in 2012 and 2014, and a very significant credit (or "negative cost") in 2013 and 2015. If I want to do a long-term trend analysis as an investor, it is useful to have the company provide me with these numbers to "normalize" the trend and exclude the noise. Verizon is a very profitable company, both under GAAP and non-GAAP metrics, and adjustments from GAAP to non-GAAP can go either way: results can become higher or lower when unusual items are excluded. Here's a second example: pharmaceutical company Valeant. In their overview of non-GAAP adjustments to get from the GAAP net income at the top to the non-GAAP net income at the bottom, Valeant has a long list of up to 15 items, and every year the non-GAAP results are higher than the GAAP results. In 2015, the company had a GAAP loss of $292 million but an "adjusted" non-GAAP profit of $2.8 billion after stripping out amortization of intangible assets, acquisition costs and other expenses. On a revenue of $10.4 billion, that means the GAAP net profit margin of -3% has turned into a non-GAAP profit margin of +27%. Quite a difference! So why should anyone worry about the proliferation of non-GAAP measures? There are four main reasons for that: First of all, non-GAAP financial measures are not audited! The leadership of companies could be tempted to behave in a more opportunistic way in classifying results and defining metrics of success. Second: more and more companies are using non-GAAP financial measures, which defeats the purpose of the word "General" in the term Generally Accepted Accounting Principles. The Wall Street Journal recently reported that only 6 percent of companies in the S&P500 index reported 2015 financials using solely GAAP measures. According to research firm Audit Analytics, this figure was 25 percent in 2006. Third: analysts and the media have given non-GAAP metrics more prominence. Fourth and perhaps most concerning, non-GAAP results are very often better than those reported under GAAP! And the spread between them has been growing. S&P published a study of FTSE100 companies showing that around 80% of the companies reported an adjusted operating profit that was higher than the unadjusted operating profit. So the big question is: how do we avoid non-GAAP measures becoming "Earnings Before Bad Stuff"? Fortunately, the issue is in the spotlight with regulatory agencies and accounting standards boards, all the way up to the chairmen! They have made some very clear statements about the concerns: Securities and Exchange Commission Chairman Mary Jo White has said: "Non-GAAP information is meant to supplement the GAAP information, but not supplant it." and "In too many cases, the non-GAAP information has become the key message to investors." Hans Hoogervorst (Chairman of the International Accounting Standards Board, in charge of IFRS) said: "Non-GAAP measures represent a selective presentation of an entity's financial performance.