Non-GAAP Measures: What’s All the Fuss About?

Funds from operations, EBITDA, adjusted EBITDA, adjusted revenues, free cash flow, and core earnings are among the non-GAAP measures public companies use frequently in their annual reports, earnings releases, investor presentations, press releases, and other publicly available sources. Concerned that such measures can be confusing, even misleading, the SEC is intensifying its focus on their use.

As evidenced by recent public remarks by SEC senior officials, followed closely by Corp Fin’s issuance of a Compliance and Disclosure Interpretations update, non-GAAP financial measures are in the SEC spotlight. To help companies re-examine how they use such measures and determine what is appropriate, this article summarizes the existing rules, disclosure requirements, and prohibitions as well as the recent supplementary guidance.