GAAP vs. Non-GAAP: Everything You Need to Know

Many companies report non-GAAP net income to get investors excited. How does it differ from GAAP income and how should you analyze it?

By Mike Price – Updated Sep 6, 2024 at 1:53 PM

Key Points

GAAP standards provide uniform financial reporting, critical for investors and auditors comparing companies.
Non-GAAP results adjust GAAP figures to highlight specific financial aspects, but they require careful scrutiny.
Investors should verify non-GAAP adjustments and assess the long-term implications of these adjustments on investments.

When you read financial statements, you may see GAAP vs. non-GAAP figures reported. All public companies in the U.S. are required to use generally accepted accounting principles (GAAP). Financial statements created using these principles are filed on a quarterly basis. Many companies choose to also report their own non-GAAP financials.

What is the difference between the two? Let's go over GAAP vs. non-GAAP and what you should do if a company reports both.

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A graphic comparing the differences between generally accepted accounting principles vs. non-GAAP measurements. — Image source: The Motley Fool

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SEC (Securities and Exchange Commission)

The SEC, or Securities and Exchange Commission, is an independent government agency responsible for ensuring the integrity of the capital markets in the United States.

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EBITDA

Earnings Before Interest, Taxes, Depreciation, and Amortization – a measure of a company's operating performance.

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A chart showing the differences in UPS gaap and non-gaap net income — Image source: UPS.

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About the Author

Mike Price is a 23 year-old Masters of Finance graduate who first started learning about investing on the Motley Fool when he was 13. He is currently seeking a job.

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Mike Price has no position in any of the stocks mentioned. The Motley Fool recommends United Parcel Service. The Motley Fool has a disclosure policy.