Amounts Are Down, but Volume of Adjustments Keeps Going Up
NEW YORK, May 22, 2024 /PRNewswire-PRWeb/ -- Calcbench, the leading interactive financial research firm for data-intensive analysts, and Suffolk University's Sawyer Business School have released their fourth annual Non-GAAP Reconciliation Report, finding that large U.S. companies adjusted their 2023 earnings to push up "traditional" net income by an average of 29 percent.
Every year Calcbench and Suffolk University examine the earnings reports for a group of randomly selected S&P 500 companies, to see how those firms adjust the net income numbers calculated according to U.S. Generally Accepted Accounting Principles (GAAP). The adjustments might include acquisition costs, impairment of overvalued assets, equity-based compensation, and other items — and in total, they can push adjusted net income considerably higher or lower than GAAP net income.
This year the report examined the 2023 earnings of 260 firms. On average, adjusted net income (that is, non-GAAP net income) exceeded GAAP net income by an average $698 million per company, which is roughly 29 percent larger than GAAP net income. That compares to a 38 percent increase in 2022 and 14 percent in 2021, although prior years' reports worked from a smaller sample size.
Calcbench and Suffolk also found that while firms had more individual non-GAAP adjustments this year, the dollar value of those adjustments was smaller. That is, Companies had an average of 6.3 adjustments in 2023, compared to an average of 5.9 adjustments in 2022 — but the average dollar value of adjustments in 2023 was $110.8 million, a 60.2 percent decrease from the $184 million average adjustment in 2022.
Altogether, Calcbench and Suffolk identified 1,649 individual reconciling items in this year's sample group, with a total value of almost $182 billion. Eighty-six percent of companies adjusted non-GAAP income upwards (that is, non-GAAP income was higher than GAAP income); the other 14 percent adjusted non-GAAP income downward.
"These findings continue to question the information value of as-reported GAAP net income," says Pranav Ghai, co-Founder and CEO of Calcbench. "Yes, the total value of non-GAAP adjustments this year was smaller in dollar terms than in 2022, but that doesn't signal any sort of retreat from adjusting earnings. On the contrary, firms are now making more adjustments. Clearly they believe that traditional GAAP net income doesn't convey enough information to investors."
The most common categories of adjustment for 2023 remain unchanged from 2022. They were, in order:
- Gains and losses on investments (including pensions)
- Tax adjustments
- Mergers, acquisitions, and divestitures
- Restructuring costs
- Amortization of intangible assets
On the other hand, the largest categories of adjustment by total dollars adjusted were, in order:
- Amortization of intangibles
- Impairments
- Stock-based compensation
- Litigation
- Mergers and acquisitions
Perhaps as a sign of 2023's healthy economic climate (compared to inflation-addled 2022), impairments accounted for a smaller share of all adjustments in both percentage and dollar terms. For example, the study identified a total of 100 impairments in 2023, but they accounted for only $41 billion worth of adjustments, or 22.6 percent of the total. That compares to 72 impairments in 2022 that accounted for $76.5 billion and 35 percent of that year's total.
"Understanding non-GAAP reporting is critical for students who are looking at a career in accounting or finance which is why we've added non-GAAP to our Accounting Capstone class," said Tracey Riley, Associate Dean of Online Education and Assessment, Professor, Accounting & Business Law. "With so many companies making such a wide range of adjustments, and significant adjustments in dollar terms, the next step will be for students to discern whether this will be sustainable for future performance."
About Calcbench
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 and supported by a team of financial experts, Calcbench was built for data analysis looking to go deeper. Visit http://www.calcbench.com to learn more.
About Suffolk University
Suffolk University, located in historic downtown Boston, provides students with experiential and transformational learning opportunities that begin in the center of Boston, reach across the globe, and lead to extraordinary outcomes for graduates. The University is driven by the power of education, inclusion, and engagement to change lives and positively impact communities. Suffolk University offers a wide range of undergraduate and graduate programs in its College of Arts & Sciences, Sawyer Business School, and Law School.
Media Contact
Samantha Berg, Calcbench, 1 917-533-4622, [email protected], www.calcbench.com
SOURCE Calcbench
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