Non-Gaap measures: we're not savages We've got to have rules and obey them. After all, we're not savages. Jack, the nasty lad who urges this in Lord of the Flies, has a point. But companies" GAAP or IFRS results usually come along with metrics that fall outside the lines. It is a bit of a free for all - but a good one, on the whole. Alternative performance measures often present a sort of parallel world - earnings adjusted for one-off gains and losses reflect what management thinks is normal. Ebitda - earnings before interest, taxes, depreciation and amortisation - purports to show the cash flow independent of capital structure. These subjunctive (if not subjective) measures are often a big help. Moody's recently argued that ebitda is useful in signalling rising default risk in today's ocean of covenant-lite corporate debt. But there are some savages who use APMs too liberally. Groupon's IPO presented adjusted operating income of $60m in 2010. Add back marketing costs - why on earth would one exclude them? - and the loss was $180m. Groupon later abandoned the metric. Valeant presents "adjusted cash flow from operations," a hilariously unhelpful metric. The whole point of cash flow, as opposed to earnings, is that it is not adjusted. But not all problems are obvious. Telecoms companies merrily present ebitda as a proxy for cash profits when capital investment is a constant cash drain. The danger presented by APMs is no greater than the danger of assuming that any standard set of metrics can fit all companies. "Embedded value" statements present a longer term, more stable picture of insurers than IFRS. APMs have another unique value. Armed with the reconciliations of the standard and non-standard metrics, investors cannot only reach their own conclusions, but also get an important insight into what management thinks is important or irrelevant. Like children given free rein, what executives do with their liberty is very telling.