Why might companies report non-GAAP earnings?

Companies report non-GAAP earnings primarily to provide a clearer picture of their financial performance by adjusting for non-cash expenses, such as amortization, depreciation, and stock-based compensation. These adjustments help investors and analysts better understand the cash-generating capabilities of the business. Non-GAAP measures can often reflect the underlying operating performance without the distortion of accounting practices mandated by GAAP (Generally Accepted Accounting Principles).

For instance, while GAAP requires companies to account for amortization as an expense, this is a non-cash transaction that doesn't impact the company's cash flow. By excluding such items, companies aim to offer figures that more accurately represent their ongoing profitability and operational efficiency. This can be particularly important for investors who are focused on cash flow and sustainable earnings generation, as it allows for better comparability among companies and industries.

In the context of the other options, highlighting investment income may be a consideration, but it does not explain the broader use of non-GAAP earnings. Meeting government regulations is primarily a function of adhering to GAAP, rather than reporting non-GAAP earnings. Lastly, non-GAAP earnings are generally aimed at presenting a more favorable view of profitability rather than showing lower profitability, which does not align with the typical intention behind using non-G