<h2>Non-GAAP Earnings</h2>
<p><strong>Non-GAAP earnings</strong> are a measure of a company's financial performance that excludes certain expenses or includes certain revenues, providing a different view of the company's earnings compared to the generally accepted accounting principles (GAAP).</p>

<h2>How It Works</h2>
<p>Companies often report non-GAAP earnings to provide additional insights into their core operating performance. These adjustments can include:</p>
<ul>
  <li>Excluding stock-based compensation expenses, which can be significant for tech companies.</li>
  <li>Removing amortization of intangible assets, such as goodwill.</li>
  <li>Adjusting for one-time or non-recurring items, like restructuring charges or gains from asset sales.</li>
  <li>Including revenue from contracts that have not yet been billed (for companies with subscription-based models).</li>
</ul>
<p>To calculate non-GAAP earnings, companies typically start with their net income (or loss) as reported under GAAP and then add or subtract the specified items. The result is presented alongside GAAP earnings to give investors a more complete picture of the company's financial health.</p>

<h2>Why It Matters for Traders</h2>
<p>Non-GAAP earnings can matter to traders for several reasons:</p>
<ul>
  <li><strong>Better understanding of core operations</strong>: Non-GAAP earnings can help traders focus on the company's recurring earnings and exclude one-time or non-operational items.</li>
  <li><strong>Comparability across companies</strong>: Different companies may have varying levels of stock-based compensation or amortization expenses. Non-GAAP earnings can help traders compare companies in the same industry more accurately.</li>
  <li><strong>Analyst and management focus</strong>: Many analysts and company management teams focus on non-GAAP earnings when discussing financial results and setting guidance. Understanding non-GAAP earnings can help traders better interpret these communications.</li>
</ul>

<h2>Example</h2>
<p>Consider a tech company with the following financials:</p>
<table>
  <tr>
    <th>Item</th>
    <th>GAAP</th>
    <th>Non-GAAP</th>
  </tr>
  <tr>
    <td>Revenue</td>
    <td>$100 million</td>
    <td>$100 million</td>
  </tr>
  <tr>
    <td>Net Income</td>
    <td>$20 million</td>
    <td>$35 million</td>
  </tr>
  <tr>
    <td>Stock-based Compensation</td>
    <td>($15 million)</td>
    <td>—</td>
  </tr>
  <tr>
    <td>Amortization of Intangible Assets</td>
    <td>($5 million)</td>
    <td>—</td>
  </tr>
</table>
<p>In this example, the company's non-GAAP earnings of $35 million provide a different perspective on the company's performance compared to the GAAP net income of $20 million.</p>

<h2>Key Takeaways</h2>
<ul>
  <li>Non-GAAP earnings provide an alternative view of a company's financial performance by excluding certain expenses or including certain revenues.</li>
  <li>Traders can use non-GAAP earnings to better understand a company's core operations, compare companies more accurately, and follow analyst and management discussions.</li>
  <li>Non-GAAP earnings should be considered alongside GAAP earnings to gain a comprehensive understanding of a company's financial health.</li>
</ul>