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That doesn't necessarily mean shorting a company just because it uses non-GAAP numbers is a good idea though. As with anything, if you understand what the non-

That doesn't necessarily mean shorting a company just because it uses non-GAAP numbers is a good idea though. As with anything, if you understand what the non-GAAP numbers represent, it's not a problem. If you don't..

refurb 10y ago
That doesn't necessarily mean shorting a company just because it uses non-GAAP numbers is a good idea though. That would be an interesting investing thesis to test. You are correct, non-GAAP numbers don't mean a company is hiding something, but it does make you ask why they felt the need to use non-standard accounting principles (the answer is it makes them look better).
- mstachowiak 10y ago
  In Tesla case, it's because the non-GAAP numbers represent how they view and make decisions about their business internally. It makes them look better in some dimensions and worse in others. They report on it because it gives insights into how they think about things.
  - refurb 10y ago
    Based on the analyses I've read, it looks like a big driver of the non-GAAP difference is Tesla completely ignoring the cost of acquiring SolarCity. Is that a fair analysis? It depends. Those non-GAAP numbers suggest the car manufacturing business is doing well, but hide how Tesla is doing overall (including cash flow) as a result of SolarCity.
- tedsanders 10y ago
  By design, GAAP accounting principles are very conservative, to make it harder for deceptive actors to conceal losses. However, for making management decisions, GAAP accounting principles are so conservative and rigid that they can actually obscure the key drivers of a business. This is why management accounting is historically done differently than financial accounting. Financial accounting is optimized for revealing fraud, not for understanding or running businesses. Therefore, if someone chooses to use non-GAAP accounting, you're right it can mean they are hiding something, but it can just as easily mean they are trying to relay more useful and informative numbers. In all cases, of course, it's important to understand what the numbers mean.

refurb 10y ago

That doesn't necessarily mean shorting a company just because it uses non-GAAP numbers is a good idea though. That would be an interesting investing thesis to test. You are correct, non-GAAP numbers don't mean a company is hiding something, but it does make you ask why they felt the need to use non-standard accounting principles (the answer is it makes them look better).

mstachowiak 10y ago
In Tesla case, it's because the non-GAAP numbers represent how they view and make decisions about their business internally. It makes them look better in some dimensions and worse in others. They report on it because it gives insights into how they think about things.
- refurb 10y ago
  Based on the analyses I've read, it looks like a big driver of the non-GAAP difference is Tesla completely ignoring the cost of acquiring SolarCity. Is that a fair analysis? It depends. Those non-GAAP numbers suggest the car manufacturing business is doing well, but hide how Tesla is doing overall (including cash flow) as a result of SolarCity.
tedsanders 10y ago
By design, GAAP accounting principles are very conservative, to make it harder for deceptive actors to conceal losses. However, for making management decisions, GAAP accounting principles are so conservative and rigid that they can actually obscure the key drivers of a business. This is why management accounting is historically done differently than financial accounting. Financial accounting is optimized for revealing fraud, not for understanding or running businesses. Therefore, if someone chooses to use non-GAAP accounting, you're right it can mean they are hiding something, but it can just as easily mean they are trying to relay more useful and informative numbers. In all cases, of course, it's important to understand what the numbers mean.