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If you are interested in specifics, Square's annual report is a good example of GAAP not being very useful.

First off, that is the second quarter report, not an annual report. Not terribly meaningful to the discussion, but needs to be pointed out.

Now, what are the adjustments they make to GAAP? Here you go: (page 22 of the PDF report)

Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net
Income (Loss), and Diluted Adjusted Net Income (Loss) Per
Share (Adjusted EPS) are non-GAAP financial measures that
represent our net income (loss) and net income (loss) per
share, adjusted to eliminate the effect of share-based
compensation expenses; amortization of intangible assets;
gain or loss on revaluation of equity investments; bitcoin
impairment loss; and the gain or loss on the disposal of
property and equipment
, as applicable.

(Bolding mine)

So they've eliminated a boatload of expenses. Stock compensation. Amortization. Gain or loss on stock investments. Bitcoin losses. Disposal of equipment.

I'm going to be perfectly honest here. I can see a use for some of these adjustments. They can get you to the results of the core operations of the business. I've thoroughly expressed my opinion of stock comp, so i won't repeat it again. I'm OK with the stocks and bitcoin. Those are investments of cash not immediately needed in the business. We need to know those to judge management's overall effectiveness, but they aren't part of the core business. Amortization and disposal of equipment I'm a bit more concerned. It depends on what you are amortizing. Some amortization is OK to remove, some is not. Disposal of equipment is often a normal part of the business. The business needs equipment and that equipment has a finite (if sometimes a bit variable) life span. Getting rid of such equipment is a normal part of operations. If you've got a loss on the disposal of that equipment, it usually means you're not depreciating it fast enough or your not maintaining it properly so it didn't reach its expected life. I'm sure you can see how leaving that out could be abused by management.

I do find it interesting that the disclosure states pretty clearly they omit bitcoin losses but not gains. It's also interesting the the GAAP statements report an apparent net income from bitcoin even after the bitcoin impairment losses. Unfortunately, these are unaudited statements and they don't have any footnotes, so it's impossible to determine what is going on here. Perhaps that info would be found in the most recent annual report.

I'll repeat - I don't have a problem with just about any adjustment for internal management use. And I don't have a problem with some adjustments some of the time. But if you're an investor, stick to the GAAP statements, and then make only the adjustments management is suggesting that you also agree with.

--Peter

PS - If you agree with the stock compensation adjustment, I will have no pity on you if (or perhaps when) that decision comes home to roost.
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