What is Adjusted EPS?

Definition

Adjusted EPS refers to a company's earnings per share adjusted according to certain standards, such as non-GAAP measures. This metric is used to assess a company's profitability and financial condition.

Origin

The concept of Adjusted EPS originated from the need for more accurate financial reporting, especially in the late 20th century, as corporate financial activities became more complex. Investors and analysts required more precise profitability metrics to evaluate a company's true financial performance.

Categories and Features

Adjusted EPS is typically categorized based on different adjustment standards, such as excluding one-time items, restructuring costs, or non-cash items. These adjustments make EPS more reflective of a company's ongoing operational capability. The advantage is that it provides a clearer picture of profitability, but the downside is that comparability may decrease due to varying adjustment standards.

Case Studies

For example, technology company Apple Inc. often uses Adjusted EPS in its financial reports to exclude certain one-time expenses, providing a more accurate reflection of its core business profitability. Another example is pharmaceutical company Pfizer, which uses Adjusted EPS post-merger to exclude restructuring costs, offering a clearer view of profitability.

Common Issues

Common issues investors face when using Adjusted EPS include inconsistent understanding of adjustment standards and potentially overlooking the impact of adjustments on long-term profitability. Investors should carefully read the financial statement notes to understand the specific adjustments made.