4 ms·
long story short, different companies have different economic circumstances - different assets, different risks, different cashflow, supplier and customer arran
by princeb 10y ago
long story short, different companies have different economic circumstances - different assets, different risks, different cashflow, supplier and customer arrangements, different operating structure, different expenses, etc that will all influence the nature of GAAP statements, being a common set of standards applied to ALL companies. It's like measuring all people with a single score like IQ.
Experienced investors never take GAAP at face value - most of them will work with both the GAAP and pro forma (as well as any other public releases) and try to reverse engineer the individual lines in order to tease out more pertinent (in their opinion) factors that affect the value of the business. different investors value risks differently but the pro forma is created by management for a general set of investors in order to bridge the gap between GAAP and exact economic reality.
- vasilipupkin 10y agoExactly. Gaap doesn't necessarily perfectly reflect economics of the company's business. So, the non gaap measures are there to be used in conjunction with, not instead of, gaap
- KKKKkkkk1 10y agoMy understanding is that at least the IFRS standards are developed precisely with the goal to fit all businesses in all industries. Whenever concerns come up that this is not the case, the standard is amended. And so companies who are making claims that IFRS does not adequately describe their business are justly met with suspicion. If GAAP does not work that way then it's one more reason to move on to IFRS.
- asbromberg 10y agoI think its wrong to think that any accounting system can ever be made to be appropriate for all industries (GAAP, IFRS, or anything else). They each require 100s of decisions and assumptions that may bias or mislead investors one way or another; its not like any one of those decisions is the "right" one either. Its more important that we make sure investors are aware of what those pitfalls are. Not to mention, the cost of asking every US company to switch to IFRS would be enourmous (though i'm sure the big 4 accounting firms wouldn't mind). As a side note, GAAP definitely isn't industry agnostic. For example, FASB (the financial accounting standards boards) issues guidance on revenue recognition for all sorts of companies and the guidance for a software company is very different than the guidance for your generic widget manufacturer.