This new report "More Active Investors Rely on Non-GAAP vs. GAAP Reporting in Analyzing Stocks" from Clermont Partners reflecting its survey of 56 active (i.e., not passive) investors diversified across industry focus and investment styles revealed that these investors rely heavily on both a company's non-GAAP reporting as well as their own adjustments to GAAP in evaluating company performance.
Key findings include:
- 74% of respondents rely on non-GAAP more than GAAP reporting in evaluating a company’s performance.
- 44% of respondents believe that - over time - non-GAAP measures have become more important in evaluating a company's financial performance.
- These non-GAAP measures are used the most in evaluating companies (in order of ranking): (i) FCF, (ii) EBITDA/adjusted EBITDA, (iii) adjusted net income or EPS, (iv) enterprise value/EBITDA, (v) bookings or billings.
- 90% of respondents frequently make their own adjustments to a company’s GAAP results based on what they believe is relevant in evaluating performance; the survey results suggest that only 6% use straight GAAP.
- Intangible assets (e.g., IP, goodwill) are considered important, very important or absolutely critical by 64% of respondents in evaluating a company.
- 36% of respondents weigh non-financial metrics or characteristics (e.g., industry trend data, sales pipeline, customer satisfaction, new customer adoption rates) strongly when they make buy and sell decisions.
Among the report's suggested takeaways for management based on the survey results are using non-GAAP measures judiciously, on an even-handed basis, and consistently over time.