Hey future banker,

Welcome back to Finterview! We hope your recruiting is going well.

Let’s jump into today’s interview question.

Why do companies report both GAAP and non-GAAP earnings?

Let me break it down simply:

Think of GAAP earnings like a strict recipe that everyone must follow. Non-GAAP is like each chef's interpretation - removing ingredients they think distort the taste of their dish.

GAAP provides consistency. Every public company follows the same rules, making comparisons easier. It's like having standardized test scores - not perfect, but at least everyone's measured the same way.

Non-GAAP tells the business story. Companies remove one-time items, restructuring costs, or stock compensation. The argument? These items cloud the view of core business performance - like judging a restaurant on food quality, ignoring a one-time plumbing disaster.

But watch for red flags. Some companies abuse non-GAAP metrics to paint a prettier picture. Like a chef claiming their food costs are lower by ignoring "special" ingredients. That's why the SEC requires clear reconciliation to GAAP.

Remember: GAAP ensures consistency, non-GAAP aims for clarity. Good companies use non-GAAP to show their business better, not to hide problems.

Smart analysts look at both - they tell different parts of the same story.

Talk soon,

Sam