GAAP is the rulebook for US financial statements. Generally accepted accounting principles. Net income under GAAP is calculated the same way by every filer, which is what makes two companies comparable.
GAAP is the rulebook for US financial statements. Generally accepted accounting principles. Net income under GAAP is calculated the same way by every filer, which is what makes two companies comparable.
A non-GAAP measure is a figure the company builds itself by starting from a GAAP number and adjusting it. Adjusted EBITDA. Adjusted earnings. Free cash flow as the company defines it. These are not forbidden and they are often useful. They are simply not standardised.
EBITDA is earnings before interest, taxes, depreciation and amortisation. Adjusted EBITDA is that with further items the company chooses to exclude, listed in its own definition.
The protection is a rule. When a company presents a non-GAAP measure it must also present the most directly comparable GAAP measure, and it must reconcile one to the other. So the adjustment is always there to be read.
Uber for the year that ended December 31 2023.
Two figures describe the same year and they differ by $2,165 million. Neither is wrong. They measure different things.
Net income is what's left under the rulebook, after interest, taxes, depreciation, amortisation and everything else. Adjusted EBITDA is earnings before several of those, plus the other exclusions Uber sets out in its own definition.
The reconciliation is in the 10-K, in management's discussion. It starts from net income attributable to Uber and lists each adjustment until it arrives at $4,052 million. Read that list once and you know exactly what the company is asking you to ignore.
Now the comparison the company wants you to make. Adjusted EBITDA went from $1,713 million to $4,052 million. That's the growth story, and on that measure it's a strong one.
The trap is comparing one company's adjusted number with another's.
There is no standard for adjusted EBITDA. Each company defines its own. Two businesses can publish the same adjusted figure while excluding entirely different things, and nothing in either document makes that visible unless you read both definitions.
GAAP net income is the comparable number. Adjusted measures are comparable only within one company across time, and only if the definition hasn't changed. It sometimes does, and when it does the company discloses it.
The second trap is the direction of adjustment. Adjustments almost always run one way. Companies exclude costs far more often than they exclude gains, so the adjusted figure is usually the flattering one. Here the gap is $2,165 million in the company's favour. That does not make it dishonest. It makes it worth reading the reconciliation before quoting the larger number.
A colleague's slide says Uber made $4 billion last year.
Which measure is that?
Adjusted EBITDA of $4,052 million. A non-GAAP measure Uber defines itself.
What did it make under GAAP?
Net income attributable to Uber of $1,887 million.
How big is the difference and where is it explained?
$2,165 million. The reconciliation in management's discussion lists every adjustment from net income to adjusted EBITDA.
Your colleague asks which number to put on the slide.
Both, labelled. Adjusted EBITDA is what management steers by. Net income is what the rulebook produced. A slide with one and not the other invites the question you cannot answer.
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