Net Income and Adjusted Net Income

Take, for example, Amazon. This comes from someone I know who was recently hired. The highest base salary they pay is $200,000. Bonuses are granted at the end of the year in the form of stock.

That is not a stock option, it’s a bonus paid in stock. What I wrote before applies to stock options, not to stock grants. Two different animals, apples and aardvarks.

Denny Schlesinger

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swapsan: I’m not an accountant, nor am I qualified to give accounting advice. (Although
I hang around with accountants a lot, which is probably why I’m not invited to parties.)
Accounting for stock based compensation – beyond the simple stuff we’ve been talking about –
so far, is a complicated topic, and probably not the best use of this board. So I have to
pass on your questions.

AJ: we were talking about Criteo, where most of the compensation was in the form of options.
Sure, there is a form of restricted stock that results in no cash back to the company.

But that’s GAAP.

Some investors believe that GAAP is a tool to value a business, and that its primary audience
is stock investors. That’s a misunderstanding.

GAAP is a set of standards. GAAP’s purpose is to encourage organizations to be more open and
comparable. GAAP makes it more difficult for managers to hide their shenanigans. It makes it
easier to compare one organization to another. It makes it easier to compare one period to the
next within an organization. It enforces integrity within the line items of a financial statement,
and from one statement to another.

GAAP’s audience goes well beyond stock investors. One huge constituency is lenders. Others
are customers, vendors, regulators, and so on. For these other audiences, dilution – which is
so key for stock investors – just confuses the issue as to how the business is doing.

GAAP is used not just by public companies, but also by many private companies, by non-profits, and
by government entities. There is a wide, diverse set of situations that GAAP has to satisfy.

It’s a system that’s evolved. In evolutionary systems, sometimes you get an appendix.

To paraphrase Churchill – GAAP is the worst form of accounting system, except for all the others.

Ears

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Two different animals, apples and aardvarks.

Apples are now animals, but only under GAAP. Non-GAAP they are still plant fruit.

KC

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Okay, I’M TRULY SORRY I STARTED THIS THREAD. We are getting lost in discussions of arcane details of accounting, and quasi-religious arguments about GAAP versus non-GAAP in which the believers will never convince the non-believers, and the non-believers will never convince the believers. LET’S PLEASE DROP THIS THREAD (which is now 24 posts long) AND GET BACK TO DISCUSSING STOCKS.

Thanks for your understanding,

Saul

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