Glossary term
Adjusted EPS
Adjusted EPS is a non-GAAP earnings-per-share measure that modifies reported EPS to exclude or include items management believes affect comparability.
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What Is Adjusted EPS?
Adjusted EPS is an earnings-per-share measure that modifies reported EPS to exclude or include items management believes affect comparability. It is usually presented as a non-GAAP measure, meaning it is not calculated strictly under generally accepted accounting principles.
Companies often use adjusted EPS in earnings releases, investor presentations, and analyst discussions. The measure can help explain operating performance, but it can also make results look smoother or stronger than GAAP earnings if adjustments are aggressive.
Key Takeaways
- Adjusted EPS starts with earnings per share and changes it for selected items.
- It is commonly a non-GAAP measure.
- Companies should reconcile non-GAAP measures to the closest GAAP measure when required.
- Investors should review what was adjusted, why it was adjusted, and whether the adjustments recur.
How Adjusted EPS Works
A company may begin with GAAP net income or GAAP EPS and adjust for items such as restructuring costs, acquisition expenses, impairment charges, gains or losses on asset sales, litigation costs, tax items, or other company-specific effects. The adjusted amount is then divided by the relevant share count to produce adjusted EPS.
The problem is not that adjustment is always wrong. Some unusual items can obscure the economics of an ongoing business. The problem is that management chooses the adjustments, and those choices can influence how investors read the result.
What to Compare
Item | Question to Ask |
|---|---|
GAAP EPS | What did the company report under standard accounting rules? |
Adjusted EPS | What changed after management's adjustments? |
Reconciliation | Can each adjustment be tied back to the GAAP measure? |
Recurring adjustments | Are supposedly unusual costs happening repeatedly? |
Reading Adjusted EPS Carefully
Adjusted EPS can be useful when it isolates unusual events or makes year-to-year comparison clearer. It is weaker when it excludes normal cash operating expenses, recurring stock-based compensation, routine restructuring, or costs that are part of doing business.
Investors should read adjusted EPS beside GAAP EPS, cash flow, revenue growth, margins, dilution, and the footnotes or reconciliation. The larger the gap between GAAP and adjusted EPS, the more important the explanation becomes.
The Bottom Line
Adjusted EPS can clarify performance, but it is management's version of earnings per share. Treat it as a useful supplement only after reviewing GAAP EPS, the reconciliation, and whether the adjustments are truly unusual or simply inconvenient.