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Bridge over ocean
1 October 2016 Position Paper

Investor Uses, Expectations, and Concerns on non-GAAP Financial Measures

  1. Vincent Papa, PhD, CPA, CFA
  2. Sandra J. Peters, CPA, CFA

Investor feedback, backed by evidence from academic research, shows that investors use NGFMs as a valuation input.

This paper, the first of a two-part publication, articulates investors’ uses, expectations, and concerns on non-GAAP financial measures (NGFMs), also called alternative performance measures (APMs)1. As discussed in Section 1.4, NGFMs/ APMs are defined as financial measures derived from adjusted GAAP/ IFRS measures and do not include other key performance indicators (KPIs) and operational measures (e.g., customer retention rate). The focus on NGFMs is timely given the recent intense media spotlight on these measures. The follow-up and second part of this publication will provide investor perspectives on how to enhance the overall performance reporting framework and ensure effective communication of NGFMs. NGFMs are a core part of how companies communicate performance, and they are meant to supplement measures required by accounting standards (e.g., US GAAP/IFRS). Companies communicate these measures with the objective of conveying performance through the “eyes of management,” among other reasons.

Investor Uses, Expectations, and Concerns on non-GAAP Financial Measures View the Report (PDF)