From Sam Ro at yahoo.com:
Almost all of the companies in the S&P 500 (^GSPC) have announced their quarterly earnings, and now Wall Street’s number crunchers are finalizing their conclusions as to what actually happened during the last three months of 2015.
Unfortunately, it’s become an increasingly challenging task to understand the true financial performance of the big publicly traded companies because of the widening of something called the “GAAP gap.”
Don’t worry: this topic isn’t as scary a concept as it sounds. In a nutshell, there’s a standard known as generally accepted accounting principles, or GAAP, which encourages some uniformity in how companies will report financial results. Unfortunately, the strict standards of GAAP often force companies to report big one-time, non-recurring items that will distort quarterly earnings, in turn making them a poor reflection of underlying operations. And so, many companies will make adjustments for these items and separately report adjusted or non-GAAP financial results. (Read more about it here and here.)
All of that’s well and good. But there’s an unsettling trend we’ve been witnessing: the gap between GAAP and non-GAAP numbers is widening. Specifically, this “GAAP gap” is widening in such a way that more and more costs and expenses are being removed to make underlying profits look higher.
To continue reading: Companies haven’t fudged their numbers this much since the financial crisis
