GAAP VS Non-GAAP

GAAP means generally accepted accounting principles and is mainly used in the US, so it is written with US-GAAP attached. Because US accounting standards require treating Stock-Based Compensation as expenses and recording all expenses from one-time costs onward, EPS on a GAAP basis is often very volatile. To solve this problem, the concept of NON-GAAP began to emerge.

NON-GAAP is a standard that excludes expenses such as severance packages from employee layoffs and stock options. Then, from the rationale that corporate facility investments are also one-time costs and should be amortized over the whole, EBITDA became widely used.

For example, if Facebook lays off 25% of its employees but gives them generous severance pay, GAAP losses increase, but NON-GAAP losses do not. Of course, during the dot-com era, the reckless overuse of Non-GAAP standards by companies became so severe that some guidelines were established.

But Charlie Munger is famous for saying stop this nonsense.