GAAP vs adjusted EPS: a reconciliation worksheet
Check earnings adjustments, tax effects and period comparisons with a worked example and reusable research question.
An earnings release can present more than one earnings-per-share figure. Before comparing the current quarter with last year, identify the accounting basis, the share-count basis, and the adjustments that bridge the two numbers.
This FN2 worksheet is designed to make that bridge inspectable. It is a research process, not a claim that one headline figure always gives the best description of a business. All numbers in the worked example are hypothetical.
Find the two endpoints
Start with the issuer’s release and reconciliation table. Write down the exact labels for the GAAP measure and the company’s adjusted measure. Check whether the numbers are basic or diluted EPS, whether they refer to continuing operations, and which fiscal period they cover. Keep the source link beside the figures.
The SEC’s non-GAAP disclosure rule describes presenting the comparable GAAP measure and reconciling the differences. For a reader, the reconciliation is the place to begin checking how the adjusted figure was constructed. Do not reconstruct missing adjustments from a headline alone.
If the release provides adjusted net income but no per-share reconciliation, do not assume you can divide every adjustment by a headline share count and reproduce adjusted EPS. Check the issuer’s disclosed calculation, tax treatment and denominator. If the bridge is unavailable, say so.
Copy a reconciliation worksheet
Download the blank worksheet (CSV). Import it into your spreadsheet; the fields are blank for your own source-backed observations.
| Field | What to record | What to check |
|---|---|---|
| Period | Fiscal year, quarter and end date | Current and comparison periods match |
| Starting measure | Exact GAAP label and amount | Basic/diluted and continuing/total operations |
| Each adjustment | Issuer’s label, sign and amount | Expense added back or gain removed? |
| Tax treatment | Disclosed tax effect or after-tax basis | Do not count the same tax effect twice |
| Ending measure | Exact adjusted label and amount | Reconciliation reaches the reported total |
| Prior period | Same fields for the comparison period | Definition changes or recast figures |
| Open questions | Missing detail and source location | Preserve uncertainty rather than filling it in |
Use one row per adjustment. A combined “other” category is a reason to inspect the footnote, not a reason to invent a breakdown. Keep the company’s terminology in the source column and put your interpretation in a separate notes column.
Work through the signs, not just the labels
Here is a hypothetical, simplified per-share reconciliation in which all adjustments are already after tax and use the same diluted-share basis:
| Item | Per-share effect |
|---|---|
| GAAP diluted EPS | $1.20 |
| Add back specified restructuring expense | +$0.20 |
| Remove a specified gain | −$0.10 |
| Adjusted diluted EPS | $1.30 |
The arithmetic is $1.20 + $0.20 − $0.10 = $1.30. A positive adjustment does not mean the business generated extra cash. It means this illustrative adjusted calculation excludes an expense that was included in its GAAP starting measure. Removing a gain moves the adjusted result in the opposite direction.
Now imagine the prior-year GAAP EPS was $1.00 and prior-year adjusted EPS was $1.25, on comparable definitions. GAAP EPS growth would be 20%; adjusted EPS growth would be 4%. Both calculations can be arithmetically correct. The useful next question is what changed in the bridge, not which percentage makes the stronger headline. Actual company reconciliations may have different denominators, tax details or additional lines; do not apply this simplified example as a substitute for them.
Compare the adjustments across periods
Create a second view with the adjustment labels down the left and reporting periods across the top. Mark where a category appears, changes definition or disappears. Then ask whether the company’s explanation supports the treatment in both periods.
The SEC’s staff interpretations on non-GAAP measures discuss recurring operating expenses, inconsistent treatment across periods, and removing charges without similarly treating gains. Those are useful prompts for further inspection. The presence of an adjustment alone does not establish that a company’s disclosure is improper.
Avoid replacing the issuer’s explanation with a blanket label such as “one-time.” Record what the company calls the item, whether it appeared in prior reports, and which future disclosure would resolve the question. An expense can be irregular without being irrelevant to the economics of the business.
Connect earnings to cash without equating them
After checking EPS, examine operating cash flow and the company’s discussion of working capital and investment. The income statement and cash-flow statement answer different questions, as explained in the SEC’s financial-statement guide.
Keep the time spans aligned. If the cash-flow statement reports year-to-date amounts, label them that way. Do not compare a year-to-date total with a single-quarter EPS figure and describe the difference as a quarterly cash-conversion rate. When a company uses a non-GAAP cash-flow measure, record its definition separately.
Ask for a bridge you can verify
Use this prompt with your chosen company:
For IBM’s most recently reported quarter, identify the fiscal period and locate the issuer’s GAAP and adjusted earnings reconciliation. Show the exact measure names, each adjustment, the disclosed tax and share-count treatment, and the source links. Check whether the arithmetic reaches the reported totals. Compare the definitions with the prior-year period. If a reconciliation or detail is missing, label it unavailable rather than estimating it. Keep the issuer’s explanation separate from your assessment.
Open this research question in FN2
The link opens a draft for review and editing before you send it. It does not automatically run research. An FN2 account is required to submit the question.
For a broader review, use the earnings-call comparison worksheet and browse public earnings reports. The goal is a short, reproducible record: which number you used, why the comparison is valid, and which source lets someone else check it.