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

Non-GAAP

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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