when used appropriately these non gaap financial measures can help companies provide a more meaningful picture of the company s performance and value presenting only the financial results of the core business activities can be useful however there are no regulations around non gaap earnings per share eps investors have no way of knowing whether non gaap eps figures are genuine or manipulated in an attempt to deceive the automated news watching trading algorithms into taking action as the results are published in headlines 
criticism of non gaap earningsa company s quality of earnings is important so investors need to consider the validity of non gaap exclusions on a case by case basis to avoid being misled studies have shown that adjusted figures are more likely to exclude losses than gains gaap earnings now significantly trail non gaap earnings as companies become addicted to one time adjustments which become meaningless when they happen every quarter merck for example turned a loss of 0 02 per share under gaap into an adjusted profit of 1 11 a share in the fourth quarter of 2017 a 5 650 difference so investors should be careful not to lose sight of gaap earnings standardized accounting rules are in place for consistency and comparability consistent revenue recognition makes reported earnings more reliable for historical comparison and it allows investors to compare the financial results of one company to that of its industry peers and competitors that is why the securities and exchange commission sec requires publicly traded companies to use gaap accounting in the first place u s companies are under increasing pressure from the sec to disclose gaap earnings upfront in their earnings reports before pointing at non gaap earnings the sec has begun taking enforcement actions against improper practices where companies provide greater prominence to non gaap figures than gaap figures technology companies are among the most frequent abusers of non gaap eps because they use a significant amount of stock compensation and have large asset impairments and r d costs 