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Why does that make GAAP deceptive?

• tim333 10y ago
  It makes the company look like they are doing poorly when they are not recording GAAP profits but are increasing things like their user base and intellectual capital which are not reflected in the GAAP profits and losses. Say you start from nothing and get a million users paying you $10 each for some info service and you spend $10m in advertising to get there which you expense. That will show, roughly speaking, a GAAP profit of zero but your user base of 1m people paying $10 will be worth ~100m ($100/paying user) so you really will be wealthier by nearer $100m than $0. Basically change in intrinsic value of the business is often a more useful measure than GAAP profits (or EBITA or all the other stuff). It's what counts to a business owner. GAAP profits are what the government forces you to declare so they can charge corporation tax on them and smart CEOs like Bezos will often try to keep the GAAP profits down so as to pay less tax while maximising the intrinsic value of the business which is what makes you rich.