There has been plenty of attention recently on the use of non-GAAP measures. Last year the SEC staff updated their Compliance and Disclosure Interpretations, and has since been questioning certain issuers about the form and content of their non-GAAP measures.
One common add-back when reporting non-GAAP earnings measures is stock compensation expense. This is often done because the charge is non-cash and thus viewed by some to be less relevant for investors when assessing the operating results of a company.
PwC’s Trends in stock compensation: Non-GAAP measures studies the prevalence of stock compensation add-back’s in non-GAAP measures and trends in use of this approach over the last few years.
It is important to note that all compensation, including equity compensation, is plainly a cost of doing business and should be reflected in any non-GAAP measurement of earnings in precisely the same manner it is reflected in GAAP earnings.