Investor Risk: Almost 60% of IPOS Fail to Use GAAP

GAAP – an acronym for generally accepted accounting principles – is vital in financial reporting. But nearly 60 percent of companies fail to provide financials fully based on GAAP, according to a study by PwC US.

Entitled, How non-GAAP Measures Can Impact Your IPO, the report analyzes 400 initial public offerings (IPOs) from 2011 to 2013. The study shows at least one GAAP measure wasn’t included in 65 percent of the IPOs.

That one important non-GAAP (NGM) measure was EBITDA, the acronym for “estimated before interest, income taxes, depreciation and amortization” measures.

profits-618373_1280This is risky for investors who should be considering good financial reporting.

Good financial reporting enables investors to make astute financial decisions. Investors need to be able to assess the cash, timing and certainty of a company’s revenue.

“Management teams, investors, regulators and ratings agencies are keenly focused on NGMs and how they are being used by new equity issuers,” said Neil Dhar PwC’s U.S. Capital Markets leader in a press release.

“As companies prepare for an IPO, among the many choices they must make is how to utilize NGMs in their filings and in their communications with potential investors,” he said.

“NGMs provide meaningful insight into a company’s liquidity, cash flow, and operating performance and using the right NGMs can help new issuers highlight key facts and circumstances to positively position themselves to the investment community,” Mr. Dhar added.

The study’s key findings:

— Adjusted EBITDA NGMs appeared in 46 percent of reviewed filings.

— More than 70 percent included an adjustment for stock, share or other equity based compensation.

— Other common EBITDA adjustments related to impairment (33 percent), acquisition (20 percent), and restructuring & reorganization impacts (15 percent).

— Eighty percent of the filings included at least one unique adjustment, which ranged from management fees to accretion charges, to income or losses from discontinued operations.

Adjustments to EBITDA can be determined at the discretion of the company. It can vary significantly from organization to organization, impacting comparability between companies and industries.

The PwC report also showed how some industries have developed other common NGMs in addition to or as a replacement for Adjusted EBITDA, That includes asset management, banking and capital markets and in entertainment, media and communications.

After Adjusted EBITDA, other common NGMs in the financial statements analyzed included EBITDA (19 percent), adjusted net income (nine percent), free cash flow (four percent) and adjusted gross profits (four percent).

“Companies should be ready to enter the IPO markets while the window is open and having their financial reporting in order from the start is a key factor in the process,” warned Mike Gould, PwC’s U.S. Public Offerings leader.

“While NGMs are a key tool for companies planning to enter the public market, it is a complex process that must be thought through objectively to avoid potential missteps, unanticipated costs and delays in their offerings,” he added.

From the Coach’s Corner, here’s related information on capital:

How Twitter Levels the Playing Field for Small Cap Companies – Good news for venture capitalists and entrepreneurs who are known to kvetch that that their companies fall below the radar screen of Wall Street analysts and the media. It’s widely known that mainstream media coverage seems to favor large companies over small ones. But an academic study shows that Twitter can help such small cap companies gain market liquidity.

How to Attract an Angel Investor – Now that a UNH study indicates early stage financing by angel investors is more advantageous than venture capital money, what now? An angel investor offers seven tips.

What No One Tells You about Raising Investment Capital – Tepid economy or not, investment capital is indeed available. That’s true during all economic cycles, according to leading consultant Joey Tamer.

What Should You Divulge When Asking for Investment Capital? – If your startup is the next big thing, but you want venture capital, you can start smiling. Yes, financing has been difficult to obtain in recent years. But entrepreneurs wanting venture capital have reasons for at least a small celebration – the money is starting to flow again after the Great Recession took its toll.

In Retrospect, Was GM’s IPO Practical or Political? – A leading expert on initial public offerings, Francis Gaskins, is not wowed by General Motors’ IPO. That’s despite GM being profitable in 2010.

I try to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.

 -Warren Buffett


Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.

Investment Advisors Feel Buoyant, but Investors Don’t Feel the Love

Oct. 11, 2012 –

How confident are investment advisors and investors about the economy?

Well, many investment advisors in Q3 2012 were cheery enough about the future to hire staff while their clients were pessimistic. Those were the salient conclusions from a study by Charles Schwab, its 12th semi-annual “Independent Advisor Outlook Study.”

Investors are faced with a complicated and uncertain economic and investment environment,” said Bernie Clark, executive vice president of Schwab Advisor Services. “It is a veritable mixed bag of risk and opportunity in which only one thing is very clear – the critical need for trusted advice.“

Gloomy investors

The study’s respondents, 830 independent registered investment advisors (RIAs), said their firms are doing well but clients are gloomy about the markets and economy.

Representing an aggregate $183 billion in assets under management, the RIAs also believe Millennials will find it challenging to enjoy the same success as their parents.

While 81 percent of the RIAs say the “American Dream” is possible, only 40 percent feel cheery about the upcoming four years.

Their opinions about impediments to the nation:

  • Client goals will be difficult to accomplish – 63 percent
  • Worries about the federal government debt – 65 percent
  • High unemployment – 61 percent
  • Cost of college education – 60 percent
  • Healthcare costs – 59 percent

“Advisors have a prism of reference that includes both the individual client’s personal and financial picture, and the advisor’s own experience as a business owner in this challenging economic environment,” said Mr. Clark. “This drives their nuanced understanding of both the opportunities and the challenges facing clients, and helps set their advice apart.”

Many advisors are advising clients to focus on cash and real assets, in lieu of large and small cap equities.

Regarding international equities, their preferences include:

  • Canada – 30 percent
  • Australia –23 percent
  • Germany – 19 percent

Compared to other investment, ETFs are the advisors’ favorite.

Presidential campaign

The political battle between Gov. Mitt Romney and President Barack Obama affected 80 percent of the advisor-client relationships. Thirty-three percent of advisors said clients are obsessed about politics and are “staying on the sidelines.” Fifty-nine percent says their client meetings include the election as a topic, but 40 percent stay away from political discussions.

RIAs say the top 3 issues for the president:

  • Reducing the deficit – 61 percent
  • Lowering the unemployment rate – 53 percent
  • Reforming the tax code – 52 percent

“It is by serving clients well in this environment that independent advisors are building lasting value in their client relationships and ultimately in their businesses,” added Mr. Clark.

Advisors’ growth

Since 2008, three-fourths of the advisors say their assets under management have increased, and 55 percent of the firms have higher profitability.

Thirty-seven percent has added staff:

  • Investment management – 48 percent
  • Client service — 47 percent
  • Operations support – 47 percent
  • Business development – 32 percent

RIA business issues

Like most businesses, respondents are on the alert for issues that might impact their firms – the breakdown:

  • Regulatory changes – 49 percent
  • Client demographics – 27 percent
  • Succession planning – 25 percent
  • Firm expenses – 24 percent

Strangely, nothing was said about Wall Street.

From the Coach’s Corner, recommended articles:

“Be fearful when others are greedy. Be greedy when others are fearful.”

– Warren Buffett



Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.


Seattle business consultant Terry Corbell provides high-performance management services and strategies.