Apple Case Study
-- The advantages and disadvantages of Non-GAAP earnings relative to GAAP earnings based on subscription accounting Advantage: 1. Management believes investors will benefit from greater transparency in referring to these non-GAAP financial measures when assessing the Company’s operating results, as well as when forecasting and analyzing future periods. Non-GAAP financial measures can be a supplement to the Company’s GAAP financial measures, which helps analyst know more about Apple. 2. It is simple to use and understand the non-GAAP financial measures. GAAP is quite trivial compared with non-GAAP. Disadvantage: 1. Non-GAAP financial measures are not consistent with GAAP because they do not reflect the deferral of revenue and product costs for recognition in later periods. Non-GAAP financial measures do not adjust for the costs associated with the Company’s intention to provide unspecified new features and software to purchasers of iPhone and Apple TV products. These costs are expensed as incurred under GAAP’s subscription accounting model, and are not adjusted in these non-GAAP financial measures. 2. GAAP is a more conservative method cause it underestimate the profit and overestimate the cost compares to Non-GAAP method. Moreover, Non-GAAP is not so convenient relative to GAAP method since GAAP has to recognize the profit and cost every month. From this perspective, GAAP is more similar to the accrual-basic accounting method but Non-GAAP is more closed to cash-basic accounting method. Since modern account favors accrual-basic accounting, it is one disadvantage of Non-GAAP. 3. Non-GAAP financial measures should not be considered in isolation from, which will cause many misunderstanding. There are no non-GAAP financial measures for prior periods by far. However, management intends to continue to track and present non-GAAP financial measures for future periods. Until management presents comparable non-GAAP financial measures for additional periods, these non-GAAP financial measures do not provide any information regarding trends in the Company’s performance and, as such, investors should not assume that the presentation of these non-GAAP financial measures reflects any positive or negative trends in the Company’s performance. 4. “The company had big plans to aggressively deliver a series of rapid software updates for the upcoming new iPhone. However, rather than planning to make money on these updates, the company wanted to deliver them to users for free to help ensure that users would actually install and use the latest updates rather than balk at upgrade fees. “ The GAAP can reflect the company’s plan more. 5. These non-GAAP financial measures may be unique to the Company, as they may be different from non-GAAP financial measures used by other companies. As such, this presentation of non-GAAP financial measures may not enhance the comparability of the Company’s results to the results of other companies.