GAAP rarely tells the whole story of a company’s performance. To bridge the gap, companies and investors communicate through key performance indicators alongside the GAAP numbers.
Disaggregation and subtotals (earnings before...), quasi-financial measures (sales per square foot, order pipeline) and operational metrics (cost per... proven and probable reserves) have become commonplace. A few such measures are the subject of agreed, usually sector-specific, definitions; but many are not.
This topic has prompted much debate. When do KPIs enhance GAAP and when do they present a confusing or overly optimistic picture?
To date, regulators around the world have taken different approaches to non-GAAP information or alternative performance measures (APMs). The most recent contribution to this important subject comes from the European Securities and Markets Authority (ESMA).