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What are Adjusted Earnings?

Adjusted Earnings are also known as pro forma, non-GAAP earnings, and are usually met with some cynicism. Non-GAAP methods of accounting for earnings are something that is not allowed to be used to mislead investors, according to SEC rules.

GAAP stands for Generally Accepted Accounting Principles, and they represent the standards and SEC rulebook for a publicly-traded company’s accounting. There are times when it makes sense to use adjusted earnings instead of GAAP earnings because adjusted earnings will ignore non-recurring one-time expenses so that analysts can compare company performance in other areas without being distracted by a large one-time expense.

There are so many things that can be declared to be non-recurring and excludable expenses, however, that is it more prudent not to put too much faith in the “adjusted” numbers.

Keywords: Securities and Exchange Commission (SEC), Generally Accepted Accounting Principles (GAAP), pro-forma, non-GAAP, non-recurring expense,