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Adjusted Earnings

This is a method of reporting a company's financial results that is not part of Generally Accepted Accounting Principles (GAAP). To present adjusted earnings, companies add or remove items from their income statements, alongside the GAAP-prepared financials. Among the most common items added back to create adjusted earnings are the stock-based compensation expense, such as those for restricted stock or options, under ASC 718. Companies justify this practice on the fact that these equity awards are not paid in cash and therefore should be removed from expenses, presenting higher earnings (or lower losses). While this method is allowed under SEC Regulation G, critics claim that this "backing out" of expenses can create an inaccurate picture of a company's profitability.

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