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No. of Recommendations: 6
I assume I'm missing something.

I don't think you're missing anything.

Well, perhaps there are occasions where a company would prefer to use IFRS (the international accounting standard) rather than GAAP (which are only for the US). If the non-GAAP statements were actually IFRS compliant, then I wouldn't have much issue with them. You'd need to do some digging to find out why a company would want to do that. And then keep whatever difference it is in mind when trying to compare to GAAP statements.

But yes, the main reason a company would issue non-GAAP statements is because they don't like the GAAP treatment.

I will say that there are some rare occasions where GAAP doesn't handle something very well. But there aren't a whole lot of those situations, and reading the notes to the non-GAAP statements should explain what is going on.

One issue I'll address head-on is stock options for employees. Some will argue those should not be expenses. All I can say is that they are wrong. Period. When stock options are the reason for non-GAAP statements, the company is trying to hide the cost of employee compensation. (Often executive compensation, which is another troublesome issue.) So figure out the missing employee compensation cost, incorporate that into the financial statements, and then start comparing to other companies.

--Peter
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