Non-GAAP Use Behind Earnings Growth

Over the past few years, the use of non-GAAP financial metrics has exploded. In the quest for ever-increasing revenues, higher earnings and of course higher management compensation, companies have been touting these adjusted figures to investors despite the fact they're not calculated according to Generally Accepted Accounting Principles.

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Now, technically Federal securities law allows companies to report non-GAAP metrics, which it believes are useful to investors. The company must be able to explain why the non-GAAP metric is helpful and reconciles that metric to the closest matching GAAP metric.

But the use of these non-GAAP figures has now become so widespread and stayed so far from the official definition that the SEC is starting to...