Up to this point, we've calculated mostly GAAP earnings for our case study. Now, we're going to bridge from GAAP to non-GAAP through adjustments.
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Hello,
for some company like Boeing, the Non-GAAP adjustment in their 10-K only involve pension and post retirement cost and it doesn’t include the stock-based compensation.
I was wondering the reason behind as Non-GAAP adjustment should exclude all the non-cash and non-recurring items
my question is:
If the company (eg Boeing) has plenty of treasury stocks, which is enough to cover the stock based compensation, do we have to adjust for it when we bridge from GAAP to Non-GAAP?
Hi Kwan, Yes, some companies won’t include SBC in their adjustments. You should go with the company-guided non-GAAP adjustments because the street will be trading off of these numbers. There are many different non-GAAP adjustments and so technically you can calculate different variations of non-GAAP metrics. Whether you exclude all or some non-cash and non-recurring items will depend on what you’re trying to accomplish. In most cases, analysts are trying to calculate a normalized earnings metric of the company that is also a close proxy for cash flow. Hence, we exclude non-cash and non-recurring items to get a recurring, cash… Read more »
Thank you so much for your detailed reply! Big fan of your work!