The company provides a reconciliation of the $5.66 EPS figures to the income statement’s reported EPS...

The company provides a reconciliation of the $5.66 EPS figures to the income statement’s reported EPS figure of $8.78. Also referred to as “Core EPS” in a PepsiCo-related press release, this figure, $5.66, is a non-GAAP financial measure many companies choose to report. What does a non-GAAP financial measure mean? What does the terminology “core” suggest to you? What is the reason that many companies provide non-GAAP financial information in their financial reports?

Expert Solution

What does a non-GAAP financial measure mean?

Non-GAAP financial means standards which are not in accordance with U.S. Generally Accepted Accounting Principles (GAAP), i.e., the adjustments made are not following the US GAAP and depends on a company.

Some examples of adjustments are:

Tax benefits associated with reorganizations of operations
Gains or losses related to mergers, acquisitions, divestitures and other structural changes
Charges or modifications related to the enactment of new laws, rules or regulations, such as significant tax law changes
Amounts related to the resolution of tax positions
Pension and retiree medical-related items
Asset impairments (non-cash)
Remeasurements of net monetary assets
Quantities related to mark-to-market gains or losses (non-cash)
Debt redemptions, cash tender or exchange offers
Charges related to restructuring programs

What does the terminology “core” suggest to you?

The core result is a non-GAAP financial measure which omits certain items from the historical results. Core EPS is the EPS adjusted for increase or decrease in stockholders’ equity rising from operations less realized and unrealized gains and losses, any incentive fees attributable to such net realized and unrealized gains and losses and any income taxes related to such realized gains.

What is the reason that many companies provide non-GAAP financial information in their financial reports?

Non-GAAP financial measures take into account the operating and strategic decisions, including the preparation of the operating plan, evaluation of the overall business performance and in determining compensation for some employees. Introducing non-GAAP financial measures provides supplementary information to aid comparison of past operating results and trends in underlying operating results, and provides additional clarity on how to estimate a business.

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