By using this site, you agree to the Privacy Policy and Terms of Use.
Accept
Marketing In Asia
  • Marketing
    • Viral
    • Expert Opinions
    • News & Trends
    • Research
    • Market Podcasts
    • Market Videos
    Marketing
    This category deals with best news and updates on marketing and branding news and events.
    Show More
    Top News
    employees brainstorming in office
    Are coworking spaces the best way to keep up the next generation of Malaysian workers engaged?
    2 weeks ago
    Ng Chew Wee, Head of Business Marketing, APAC at TikTok
    Marketing in Asia Presents an Exclusive Interview with Ng Chew Wee, Head of Business Marketing, APAC at TikTok
    4 weeks ago
    Stella Zhu
    How AI is Disrupting Advertising Production and Creatives
    1 month ago
    Latest News
    How conversational commerce benefits marketers
    5 hours ago
    Marketing in Asia Presents an Exclusive Interview with Andrew Monu, VP of Marketing, LinkedIn
    1 day ago
    Marketing in Asia Presents an Exclusive Interview with Ankita Thakur, Group Head of Marketing, MoneyHero Group
    5 days ago
    How retailers can prepare for the rise of Gen Zalpha
    1 week ago
  • Startup
    • News from Startup world
    • Startup Stories
    • Trends and Opinions
    • Startup Podcasts
    • Startup Videos
    Startup
    News and articles from startup and venture investment world
    Show More
    Top News
    Japan’s Evolving Booze Culture: A Market in Transformation
    Japan’s Evolving Booze Culture: A Market in Transformation
    7 months ago
    text
    Safe Space™ announces partnership with National Healthcare Group as it continues to boost employee support and wellbeing
    8 months ago
    Sakshi Kalani Founder & CEO of Savy Click and Jaipur Unfolded
    AI-Powered Analytics: Sakshi Kalani on Influencer Marketing in 2025
    8 months ago
    Latest News
    Byron J. Fernandez: Minimize the stress of business crises with strong CX
    5 months ago
    Vedant Mahajan Acquires Stake in Flite: Transforming Event Technology with Innovation
    5 months ago
    Navigating the Digital Economy and Tax Challenges for SMEs
    6 months ago
    sehatUP Launches India’s First Integrated Digital Health Clinic, Pioneering Holistic Healthcare
    7 months ago
  • Business
    • Feature Stories
    • News
    • Business Podcasts
    • Business Videos
    Business
    News and press releases from business world of Asia
    Show More
    Top News
    employees brainstorming in office
    Are coworking spaces the best way to keep up the next generation of Malaysian workers engaged?
    2 weeks ago
    Andy See
    Marketing in Asia Presents an Exclusive Interview with Andy See, Founder and Managing Director of Perspective Strategies
    2 weeks ago
    Ng Chew Wee, Head of Business Marketing, APAC at TikTok
    Marketing in Asia Presents an Exclusive Interview with Ng Chew Wee, Head of Business Marketing, APAC at TikTok
    4 weeks ago
    Latest News
    Marketing in Asia Presents an Exclusive Interview with Andrew Monu, VP of Marketing, LinkedIn
    1 day ago
    Marketing in Asia Presents an Exclusive Interview with Ankita Thakur, Group Head of Marketing, MoneyHero Group
    5 days ago
    How retailers can prepare for the rise of Gen Zalpha
    1 week ago
    Modern retail marketing technology solution allows businesses to deliver mind-blowing numbers of offers in real time
    2 weeks ago
  • Society
    • Inspiration
    • Destinations & Travel
    • Food & Gourmet
    • People
    • Young Voices
    • Society Videos
    • Society Podcasts
    Society
    News and articles from and for societies around us
    Show More
    Top News
    Smashers Sports Acquires Delhi Franchise of WPBL: A Game-Changer in India’s Sports Entertainment
    Smashers Sports Acquires Delhi Franchise of WPBL: A Game-Changer in India’s Sports Entertainment
    5 months ago
    Resorts World Cruises Sets Sail from Dubai with New Luxury Gulf Voyages
    Resorts World Cruises Sets Sail from Dubai with New Luxury Gulf Voyages
    7 months ago
    Australia luxury property
    Australia’s Luxury Real Estate Market Soars as Affluent Buyers Seek Waterfront Dreams
    7 months ago
    Latest News
    From Taboo to Triumph: How Malaysians Are Transforming Their Intimate Health Journey
    2 months ago
    Top 5 Misconceptions About Antibiotics Malaysians Need to Stop Believing
    2 months ago
    Eagle Eye Reveals Impact of Loyalty Programs on APAC Retailers
    2 months ago
    Elevate Your Haircare in 2025 with Jung Beauty’s Luxurious Camellia Edition Treatment
    5 months ago
  • Press Release
  • Awards
    • MIA Impact Circle Stellar CxO 2023 Malaysia
    • MIA Impact Circle Stellar CxO 2023 India
    • MIA Impact Circle Stellar CxO 2023 Philippines
    • Australian Women in Business Excellence Awards
    • MIA Impact Circle Stellar CxO 2024 Singapore
    • Mia Impact Circle Stellar Cxo 2024 Hongkong Award 
    • Mia Impact Circle Stellar Cxo 2024 Indonesia Award 
Search
Technology
  • Hot
  • Trending
  • Editor’s Choice
  • NSFW
  • Reactions
  • Authors
  • Viral on Internet
Other Pages
  • My Bookmarks
  • Customize Interests
  • About Marketing In Asia
  • Business Register & Login
  • Web Stories
  • Videos
  • Disclaimer
  • Terms of Service
  • Privacy Policy
© 2024 Marketing In Asia Sdn Bhd. All Rights Reserved.
Reading: Non-GAAP Accounting: The Misleading Financial Metrics Used By Companies
Share
Sign In
Notification Show More
Latest News
SingaporeAI Week
100+ Events, From Prototype to Product: SuperAI’s Singapore AI Week (16-22 June) Unites the Global AI Ecosystem
Press Release
Sangeeta Mudnal
How conversational commerce benefits marketers
Branding Marketing
Tahlia Phillips and Chantelle Schmidt
Vinyl Media Announces Tahlia Phillips as Head Of Publishing
Press Release
3Particle Launches XyperReal Stage
3Particle Launches XyperReal Stage – Malaysia’s First Virtual Production Research & Innovation Centre
Press Release
Olga Zanetti
SodaStream Australia appoints Olga Zanetti as Managing Director
Press Release
Aa
Marketing In Asia
Aa
  • Hot
  • Trending
  • Editor’s Choice
  • NSFW
  • Reactions
  • Authors
  • Viral on Internet
  • My Bookmarks
  • Customize Interests
  • About Marketing In Asia
  • Business Register & Login
  • Startup Register & Login
Search
  • Marketing
    • Viral
    • Expert Opinions
    • News & Trends
    • Research
    • Market Podcasts
    • Market Videos
  • Startup
    • News from Startup world
    • Startup Stories
    • Trends and Opinions
    • Startup Podcasts
    • Startup Videos
  • Business
    • Feature Stories
    • News
    • Business Podcasts
    • Business Videos
  • Society
    • Inspiration
    • Destinations & Travel
    • Food & Gourmet
    • People
    • Young Voices
    • Society Videos
    • Society Podcasts
  • Press Release
  • Awards
    • MIA Impact Circle Stellar CxO 2023 Malaysia
    • MIA Impact Circle Stellar CxO 2023 India
    • MIA Impact Circle Stellar CxO 2023 Philippines
    • Australian Women in Business Excellence Awards
    • MIA Impact Circle Stellar CxO 2024 Singapore
    • Mia Impact Circle Stellar Cxo 2024 Hongkong Award 
    • Mia Impact Circle Stellar Cxo 2024 Indonesia Award 
Have an existing account? Sign In
Follow US
© 2023 Marketing In Asia Sdn Bhd. All Rights Reserved.
Marketing In Asia > Blog > Marketing > Experts > Non-GAAP Accounting: The Misleading Financial Metrics Used By Companies
ExpertsMarketingStartup

Non-GAAP Accounting: The Misleading Financial Metrics Used By Companies

profile
Last updated: 2023/03/01 at 9:45 PM
Dr. Surbhi Sharma
Share
8 Min Read
Non-GAAP Accounting: The Misleading Financial Metrics Used By Companies
SHARE

In the business world, companies use different financial metrics to show how much money they are making and how profitable they are. While Generally Accepted Accounting Principles (GAAP) is the most commonly used set of accounting rules, standards, and procedures followed by public companies in the US, many companies resort to non-GAAP accounting to make their earnings releases look more attractive. But investors and analysts can be misled by the use of these metrics, so it is important to know what happens when non-GAAP accounting is used.

What is Non-GAAP Accounting?

Non-GAAP accounting refers to a set of financial metrics that companies use to report their earnings and profitability, which do not follow Generally Accepted Accounting Principles (GAAP) principles. The usage of non-GAAP metrics can make the company’s financials appear better than they actually are, leading to inflated stock prices and overvalued companies. Such metrics are designed to exclude certain expenses and items that are deemed to be non-recurring or irrelevant to the company’s core operations. However, the implications of using non-GAAP metrics go beyond misleading investors.

One notable example of non-GAAP accounting is WeWork’s co-founder and CEO Adam Neumann’s use of the metric “Community-adjusted EBITDA” in the bond-offering document released in April 2018, which reported earnings of $233 million.

Valeant Pharmaceuticals released its financial numbers in 2015. It is said that the company has been using non-GAAP metrics for years. While the company reportedly had a GAAP loss of $291.7 million, it reported an “adjusted” non-GAAP profit of $2.84 billion.

WallStreetMojo

In the same year, another US company, online lender LendingClub, reported a GAAP loss of $5 million but a non-GAAP net income of $56.8 million.

Indian companies are also adopting non-GAAP accounting to report their financial numbers. For example, in February 2022, online food delivery firm Zomato turned “adjusted EBITDA positive” for the month of January. Paytm also recently reported its first adjusted EBITDA positive quarter. Edtech firm Byju’s reportedly adopted a new revenue recognition norm while reporting its last financial numbers after a delay of 18 months. While 40 percent of its revenue in FY21 was deferred to subsequent years, the net loss reportedly widened to Rs4,588.75 crore for FY21 from a comprehensive loss of Rs231.69 crore in FY20.

Non-GAAP Reporting: The Gray Areas

In the past few years, non-GAAP accounting has become more popular among companies. Many use these metrics to show their financial performance in a better light. One grey area in non-GAAP reporting is the exclusion of certain expenses and items that are deemed non-recurring or irrelevant to the company’s core operations. For example, Valeant Pharmaceuticals stripped out amortisation of intangible assets, acquisition costs, and other expenses to arrive at the adjusted profit number.

Another grey area is the lack of standardisation in non-GAAP accounting, which can lead to inconsistencies in financial reporting and make it difficult to compare companies in the same industry. For instance, WeWork’s “Community-adjusted EBITDA” metric measured net income before interest, taxes, depreciation, and amortisation, as well as “building- and community-level operating expenses,” which reportedly included rent, tenancy expenses, utilities, internet, salaries of building staff, and the cost of building amenities. This non-standard metric made it challenging for investors and analysts to compare WeWork’s financial performance with that of its peers.

Implications of using non-GAAP metrics

The implications of using non-GAAP metrics go beyond misleading investors. It can also create confusion and inconsistency in financial reporting, making it difficult to compare companies in the same industry.

Moreover, non-GAAP accounting can be used to manipulate earnings and hide unfavourable financial results. By excluding certain expenses or items from their financial reports, companies can make their earnings look better than they actually are, leading to inflated stock prices and overvalued companies.

How is India addressing the challenge?

Today, India is a hotbed of startups. Therefore, it is crucial to shield the Indian startup ecosystem from such malpractices. In recent years, Indian regulators have taken steps to combat the use of non-GAAP accounting practises by companies. In 2016, the Securities and Exchange Board of India (SEBI) issued guidelines for the use of non-GAAP measures in financial reporting, mandating that companies provide a reconciliation of non-GAAP measures to their corresponding GAAP measures. The guidelines also require companies to disclose the rationale for using non-GAAP measures and explain how they are useful to investors.

Also, the Institute of Chartered Accountants of India (ICAI) has given advice on how to use non-GAAP measures, stressing how important it is for financial reporting to be clear and consistent. The ICAI has also asked for more oversight of non-GAAP measures by regulators to make sure they aren’t used to trick investors.

Also, the Ministry of Corporate Affairs (MCA) has taken steps to make financial reporting in India more open and trustworthy. The MCA put out a new auditing standard in 2020 called SA 720. This standard says that auditors must report on key audit matters (KAMs) that are important to investors. KAMs are things that auditors need to pay a lot of attention to, like areas with a high financial risk or complicated accounting issues.

Also read: The Booming Indian Startup Industry: A Bright Future Ahead

In response to the growing use of non-GAAP accounting, the US Securities and Exchange Commission (SEC) has taken steps to regulate its usage. In 2016, the SEC came out with new rules that say companies have to give more information about their non-GAAP metrics and explain how they fit in with their GAAP results. Companies must also explain why they think the non-GAAP metric gives investors useful information and how it differs from the GAAP metric.

Even though non-GAAP accounting is not against the law, companies should be honest about how their finances are doing and give investors a clear picture of how they are doing. Before investing, investors and analysts need to look closely at non-GAAP metrics and understand what they mean. Standardising non-GAAP accounting would also help to make financial reporting more clear and consistent.

You Might Also Like

How conversational commerce benefits marketers

Marketing in Asia Presents an Exclusive Interview with Andrew Monu, VP of Marketing, LinkedIn

Marketing in Asia Presents an Exclusive Interview with Ankita Thakur, Group Head of Marketing, MoneyHero Group

How retailers can prepare for the rise of Gen Zalpha

Are coworking spaces the best way to keep up the next generation of Malaysian workers engaged?

MIA
Get Latest Job Updates on Whatsapp and Telegram
SCIKEY Logo
Whatsapp
Telegram
TAGGED: Byju's, EBITDA, GAAP, Generally Accepted Accounting Principles, marketing, Non-GAAP, paytm, Valeant Pharmaceuticals, WeWork, Zomato

Sign Up For MIA Newsletter

Be keep up! Get the latest updates about the Marketing world delivered straight to your inbox.

    By signing up, you agree to our Terms of Use and acknowledge the data practices in our Privacy Policy. You may unsubscribe at any time.
    Surbhi Sharma March 1, 2023 March 1, 2023
    Share This Article
    Facebook Twitter LinkedIn Email Copy Link Print
    Share
    What do you think?
    Love2
    Happy0
    Joy0
    Surprise0
    Sad0
    Angry0
    Cry0
    profile
    By Surbhi Sharma
    Follow:
    I am PhD in Mathematics from IIT Roorkee currently working as a Market Research & Data Analyst. I have a demonstrated history of working with Startups & Corporates across private equity, e-commerce and software product industries.
    Previous Article Asian Markets Rise as Chinese Factory Activity Hits Decade High
    Next Article SAP to Double India Investment, Sees India as Innovation Hub and Safe Environment for Business
    Leave a comment Leave a comment

    Leave a Reply Cancel reply

    You must be logged in to post a comment.

    9.5k Followers Follow
    3.4k Followers Like
    1.1k Followers Follow
    214 Followers Follow
    208 Subscribers Subscribe

    Latest News

    SingaporeAI Week
    100+ Events, From Prototype to Product: SuperAI’s Singapore AI Week (16-22 June) Unites the Global AI Ecosystem
    Press Release 5 hours ago
    Sangeeta Mudnal
    How conversational commerce benefits marketers
    Branding Marketing 5 hours ago
    Tahlia Phillips and Chantelle Schmidt
    Vinyl Media Announces Tahlia Phillips as Head Of Publishing
    Press Release 5 hours ago
    3Particle Launches XyperReal Stage
    3Particle Launches XyperReal Stage – Malaysia’s First Virtual Production Research & Innovation Centre
    Press Release 6 hours ago

    PropertyGuru

    property guru

    You Might also Like

    Sangeeta Mudnal
    BrandingMarketing

    How conversational commerce benefits marketers

    5 hours ago
    Andrew Monu, VP of Marketing, LinkedIn
    BusinessInterviewsMarketing

    Marketing in Asia Presents an Exclusive Interview with Andrew Monu, VP of Marketing, LinkedIn

    1 day ago
    Ankita Thakur
    BusinessCampaignInterviews

    Marketing in Asia Presents an Exclusive Interview with Ankita Thakur, Group Head of Marketing, MoneyHero Group

    5 days ago
    Mary Reschar, Head of Product Marketing, Fluent Commerce
    BusinessMarketingOpinion

    How retailers can prepare for the rise of Gen Zalpha

    1 week ago
    //

    Get Asia to Notice You

    Quick Link

    • Contact
    • RSS Terms of Service
    • Policies & Standards
    • About Us
    • FAQ
    • Disclaimer
    • Terms Of Service
    • Privacy Policy

    Top Categories

    • Marketing
    • Startup
    • Feature Stories
    • News
    • People
    • Inspiration

    Sign Up for Our Newsletter

    Subscribe to our newsletter to get our newest articles instantly!

      Marketing In AsiaMarketing In Asia
      Follow US
      © 2024 Marketing In Asia. All Rights Reserved.
      • Disclaimer
      • Terms of Service
      • Privacy Policy