How It Works
GAAP EPS follows Generally Accepted Accounting Principles, the standardised rulebook that governs financial reporting in the United States. It includes every cost a company incurred: restructuring charges, stock-based compensation, amortisation of acquired intangibles, legal settlements, and one-time write-downs. Nothing gets swept aside.
Adjusted EPS (also called non-GAAP EPS) starts with GAAP earnings and then strips out items the company considers unusual, non-recurring, or non-cash. The formula is straightforward:
Adjusted EPS = (GAAP net income + excluded items, net of tax) / diluted share count
Amazon is a useful example because the two figures can diverge sharply. In a given quarter, Amazon might report GAAP EPS of around $1.00 while its adjusted EPS lands closer to $1.60 — the difference largely explained by stock-based compensation (a real cost to shareholders, but a non-cash one) and amortisation charges tied to past acquisitions. The company presents both figures in its earnings releases, and analysts track both closely.
How to Read It
A wide gap between GAAP and adjusted EPS signals that a company is carrying significant non-cash charges or regularly incurring "one-time" costs — worth examining carefully. A narrow gap suggests the two measures tell a similar story about underlying profitability.
Neither number is automatically more truthful. GAAP EPS is the legally audited figure and captures the full economic reality, including stock-based compensation that genuinely dilutes shareholders. Adjusted EPS can highlight the recurring cash-generating power of the core business, which is why analysts often use it to model future earnings. In capital-intensive or acquisition-heavy sectors like technology and media, the divergence tends to be larger than in, say, traditional retail.
Where to Find It on Quantify
Both GAAP and adjusted EPS figures are displayed on every Quantify stock page, making it easy to compare the two at a glance without digging through earnings releases. You can see Amazon's full earnings breakdown — including historical EPS trends for both measures — on the Amazon (AMZN) stock page on Quantify. The side-by-side view helps put the gap in context across multiple reporting periods.
Common Mistakes
Treating adjusted EPS as the "real" number by default. Companies choose which items to exclude, and those choices are not audited or standardised. Stock-based compensation, for instance, is excluded from adjusted EPS by most tech companies — but it represents genuine value transferred from existing shareholders to employees, and ignoring it consistently can paint an overly rosy picture of profitability.
Assuming the excluded items are truly one-time. If a company books "restructuring charges" in five consecutive years, those charges are effectively a recurring cost of doing business. When the same categories appear in the reconciliation table quarter after quarter, the adjusted figure may be systematically overstating the health of the business. Comparing the two numbers over several years, rather than a single quarter, gives a much clearer picture.