GAAP is short for generally accepted accounting principles. GAAP accounting standards offer uniformity in how companies report their financial performance.


Some traders are skeptical of companies that repeatedly emphasize “adjusted”, also called non-GAAP or pro forma) earnings over GAAP earnings; however, income statements based on GAAP don’t always reflect the ongoing performance of a companies underlying operations. For example, a company may make an acquisition, a disposition, restructure, or write-down an asset. These actions usually come with large one-time costs that distort company profits. As such, a company may provide an “adjusted” earnings number that excludes these nonrecurring items.

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