Companies either adjust earnings because they believe these are more accurate measures for investors or they want to show more positive results. Given significant differences between non-GAAP and GAAP earnings, it’s important to understand what adjustments are being made and why they are being made.
NEW YORK (PRWEB) June 09, 2022
Calcbench, the leading interactive financial research firm for data-intensive analysts, in collaboration with students at Suffolk University’s Sawyer Business School (SBS), announced their second annual non-GAAP study. The study analyzed 120 random S&P 500 firms’ 2021 filings and found a 14% difference in non-GAAP and GAAP net income. Notably, the reviewed companies averaged $460 million higher non-GAAP income over GAAP net income.
In 2016, the Securities and Exchange Commission issued new guidelines for nonstandard accounting metrics. The guidelines were fueled by concern around the extent and nature of the non-GAAP adjustments being made. In an effort to understand if the guidelines curbed use of earnings adjustments, Calcbench produced its first non-GAAP report in April 2021, a review of sixty S&P 500 firms’ 2020 filings. The study found that companies, despite the guidelines, still utilized a significant amount of non-GAAP adjustments to create their earnings narrative. Curious to see if 2020 filings were an anomaly due to the onset of COVID, Calcbench and Suffolk’s Sawyer Business School students completed a second study.
“Companies either adjust earnings because they believe these are more accurate measures for investors or they want to show more positive results,” said Pranav Ghai, co-Founder, and CEO of Calcbench. “Given the significant differences between non-GAAP and GAAP earnings it’s important to understand what adjustments are being made and why they are being made.”
In addition to finding over 700 individual reconciling items with adjustments valuing at $86 billion, the recent study found amortization of intangible assets to be a little more than $43 billion or half of the total. The second largest adjustment was stock-based compensation, which accounted for about 16 percent of the total adjustment, or $13.8 billion. In the prior year’s report, amortization of intangible assets was also the biggest category.
“Non-GAAP reporting is an important accounting concept to understand,” said Tracey Riley, Associate Dean of SBS Online Programs, Associate Professor, Accounting & Business Law. “We are grateful to provide Sawyer Business School students the opportunity to study this topic with real-life examples and to contribute to such an informative report.”
Calcbench is a financial data platform designed for outperformance. Founded in 2011, the company uses the latest technology to offer instant and systematic access to all the data (numbers and text) in financial statements, including the details hidden within the footnotes. Developed by former analysts, Calcbench was built for financial analysts looking to go deeper. Visit http://www.calcbench.com to learn more.
About Suffolk University’s Sawyer Business School
Founded in 1937, Suffolk University’s Sawyer Business School is woven into the civic,
commercial, and institutional fabric of Boston. Sawyer Business School programs are grounded in highly experiential curricula that put students to work on challenges with real-world enterprises, many of which are steps from our downtown Boston campus. We invite you to learn more at suffolk.edu/business.