Non-GAAP Financial Measures in the Capital Markets
Public companies provide the market with non-GAAP financial measures to demonstrate their performance outside the metrics in their audited financial statements. Non-GAAP metrics may appear in companies’ press releases, MD&A, public offering documents and elsewhere. Investors analyze these non-GAAP metrics alongside companies’ financial statements; the metrics are useful for comparing companies to their competititors and benchmarking companies within industries.
Non-GAAP Measures Shouldn’t Be Misleading
At present, securities reguators permit the use of non-GAAP measures outside the audited financial statements but companies are expected to comply with the disclosure guidance in Staff Notice 52-306. The staff notice specifies cautionary information that should accompany all non-GAAP measures, to help ensure that investors are not mislead as to the non-GAAP measures’ meaning, limitations and relationship to the more formal audited metrics.
Stricter Rules are Coming
The staff notice mentioned above is soon being replaced by a stricter rule: National Instrument 52-112, accompanied by a companion policy. For details about transition timing, see Part 5 of the new rule.
Complying with the New Rules
Public companies, investment bankers and their counsel can research the new rules by sub-topic on Lexata’s non-GAAP financial measures page. There is a list of issues to filter by – such as reconciliation of non-GAAP to GAAP measures, presentation requirements, permissible adjustments, the meaning of capital management measures and supplementary measures, and so on.
Each of Lexata’s sub-topics presents the relevant sections of the existing staff notice and the new rules and companion policy. By presenting old and new together under sub-topics, Lexata aims to make it easier for companies to assess their current non-GAAP measures disclosures and make the transition to complying with the new rules.