Non-GAAP Measures and Presentation Choices

Updated for the 2026-2027 CFA® Level I curriculum.

Companies do not just report numbers. They also choose how to present them. Non-GAAP measures and presentation choices let management highlight certain figures, reclassify items, or frame results in ways that shape how analysts interpret performance, through both supplementary measures and permitted presentation judgments within the financial statements. For CFA Level I, you need to recognize these choices and know why they matter for analysis.

Key Takeaways

• Non-GAAP measures (adjusted earnings, EBITDA, pro forma figures) exclude or add back items to show a different performance picture than GAAP requires.

• Presentation choices include how items are classified, which figures get emphasis in press releases, and how "non-recurring" items are labeled.

• These choices do not change the GAAP financial statements. They change how results are framed and communicated.

• Non-GAAP measures lack a standardized definition, so comparability across companies is limited.

• Analysts should reconcile non-GAAP figures to GAAP amounts and question whether "one-time" items truly are one-time.

• This concept is about disclosure and framing, not about changing accounting methods or estimates.

What You Need to Know for CFA Level I

• The LOS asks you to describe presentation choices, including non-GAAP measures. You do not need to calculate adjustments from scratch.

• Focus on recognizing why a company might choose a particular presentation, not on memorizing every possible non-GAAP label.

• Know that non-GAAP measures appear outside the audited financial statements, often in earnings releases, MD&A, or investor presentations.

• Understand the boundary with the next note: presentation choices do not change reported GAAP numbers. Accounting method choices (covered separately) do change what is reported.

• The main trap is treating a non-GAAP measure as more "accurate" simply because management presents it with confidence.

What Are Non-GAAP Measures?

Non-GAAP measures are performance metrics that adjust GAAP figures by excluding or adding back certain items. They appear alongside, not instead of, GAAP statements. Management is not changing the accounting. It is presenting an alternative view of performance.

Common Types of Non-GAAP Measures

These measures are not defined by accounting standards. Each company decides what to include or exclude, which is exactly why they can influence analyst opinion.

Presentation Choices That Shape Analyst Perception

Beyond naming a new metric, companies make choices about how information is organized and emphasized.

Classification and Emphasis Choices

Within the applicable presentation requirements, classification and disaggregation can affect where an expense appears relative to operating or other subtotals. Management cannot move an item freely to achieve a preferred result. Assess whether the presentation reflects its nature and complies with the framework.

Management also chooses what to emphasize in the earnings release headline. A press release might lead with adjusted EPS, while GAAP EPS appears only in a table further down. Even correctly calculated figures can be presented with unequal prominence, steering attention toward a more favorable measure. Assess applicable disclosure rules as well as arithmetic.

Pro Forma and "Adjusted" Reporting

Pro forma presentations show results as if a specific event, such as an acquisition, divestiture, or restructuring, had not happened. This can help analysts understand ongoing operations. It can also be used to repeatedly exclude costs that recur every year under a different label each time, such as "restructuring," then "transformation costs," then "optimization expenses."

Why This Matters for Analysis

Supplementary measures can be useful when presented under the applicable disclosure requirements. Misleading exclusions or undue emphasis can still create problems. Inspect the reconciliation to the comparable GAAP measure and the consistency of the definitions:

• Annual audited GAAP statements receive an audit opinion, while interim and release figures may not. Non-GAAP measures generally fall outside that opinion; check their definitions and any separate assurance.

• A gap between GAAP and non-GAAP earnings that widens over time is a signal worth investigating.

• Presentation choices can be legitimate (clarifying one-time events) or used to steer perception toward a more favorable story.

Working Example

Orchard Supply Co. reports GAAP net income of $40 million for the year. In its earnings release, management highlights "adjusted net income" of $58 million, which excludes an $18 million charge labeled "restructuring and realignment costs."

An analyst reviewing the last four years finds a similar charge, labeled differently each year, in every single year:

The excluded charge appears every year under a new name. A truly non-recurring item would not show up four years in a row.

The analyst should treat the "adjusted" figure with caution. The recurring exclusion suggests these costs are a normal part of running the business, not isolated events. GAAP net income, not the adjusted figure, better reflects the company's ongoing earnings power in this case.

Inspect the Reconciliation Before Accepting the Label

Consider a separate earnings release reporting $30 million of GAAP net income. Management adds back a $4 million recurring stock-compensation expense and a $6 million loss from a genuinely isolated facility closure. Both charges are pretax; assume a 25% tax effect on each and no other adjustments.

Pretax add-backs = $4 million + $6 million = $10 million.

Tax adjustment = -$10 million × 25% = -$2.5 million.

Management-adjusted net income = $30 million + $10 million - $2.5 million = $37.5 million.

Showing the tax effect separately makes the bridge understandable. Adding $10 million directly to after-tax net income would overstate the adjusted result under these assumptions.

An analyst who accepts only the isolated closure adjustment reaches a different result:

Analyst-normalized net income = $30 million + $6 million(1 - 0.25) = $34.5 million

The $3 million difference is the after-tax recurring compensation cost management excluded. Its non-cash nature does not establish that it is nonrecurring or economically free.

The point is to interpret presentation choices, not to assume one adjusted number is universally correct. Verify the adjustment definitions, tax basis, consistency across periods, and prominence given to the comparable GAAP result.

Common Exam Traps

Assuming non-GAAP measures are audited like GAAP figures

They are not subject to the same standardization or audit scrutiny, which is exactly why they can vary in definition from one company to the next.

Confusing presentation choices with accounting method changes

Presentation choices affect how results are framed or classified. They do not change the GAAP financial statements. Actual changes to depreciation methods, inventory costing, or revenue recognition are a separate concept tested elsewhere.

Treating recurring "non-recurring" items as genuinely one-time

If a similar charge appears year after year under different labels, it is part of normal operations, not an isolated event.

Ignoring the reconciliation between GAAP and non-GAAP figures

The reconciliation table shows exactly what was added back or excluded. Skipping it means missing the information needed to judge whether the adjustment is reasonable.

Assuming a higher non-GAAP number is automatically more useful

A non-GAAP measure can be helpful for understanding core operations, but it can also be designed to present a more favorable picture. The number itself does not tell you which purpose it serves.

Practice Question

Hartley Industries reports GAAP operating income of $22 million. In its investor presentation, the company highlights "adjusted operating income" of $31 million, which excludes a $9 million charge described as "facility consolidation costs." A review of the prior six years shows a similar charge, under a different name, in each year.

Based on this information, the analyst's most appropriate conclusion is that the excluded charge:

1. Should be ignored because non-GAAP measures are not permitted under GAAP reporting standards.

2. Reflects a true one-time event and adjusted operating income better represents ongoing performance.

3. Appears to be a recurring cost of doing business, so GAAP operating income is the more reliable measure of ongoing performance.

FAQs About Non-GAAP Measures and Presentation Choices