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Comment by refurb | Hacker News Reader

I see your point, but any company that uses non-GAAP numbers is suspect. Even the gov't is trying to crack down on companies that do it since it invariably is done to make the company look like it's performing better than it is.

Gross margin ignores all the costs not directly associated with producing the vehicle (basically COGS). There are plenty of companies with positive gross margin (even under GAAP) that fail.

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Investors are not fools; anyone reading these statements and reports is smart enough to understand the difference between GAAP and non-GAAP. Investors should make up their own minds as to which metrics are useful, just as you have made up yours that reporting the non-GAAP numbers is intrinsically suspect.

Also the non-GAAP numbers can give a more accurate impression of how the company is doing if done sensibly.

As a whole? Non-GAAP numbers are suspect enough for the SEC to create regulations around. Not every company abuses them, but enough do.[1]

[1]https://www.troutmansanders.com/using-non-gaap-measures--obs...

See the latest Berkshire letter for some examples http://berkshirehathaway.com/letters/2016ltr.pdf

>Investors are not fools

I hope you're kidding, because the counter examples to this are endless.

To be more specific - investors often do not do their own homework, and assume that some other hardworking soul has. See e.g. Theranos for a glaring example of this.

Classic bystander effect, really.

That doesn't necessarily mean shorting a company just because it uses non-GAAP numbers is a good idea though.

As with anything, if you understand what the non-GAAP numbers represent, it's not a problem. If you don't..

That doesn't necessarily mean shorting a company just because it uses non-GAAP numbers is a good idea though.

That would be an interesting investing thesis to test. You are correct, non-GAAP numbers don't mean a company is hiding something, but it does make you ask why they felt the need to use non-standard accounting principles (the answer is it makes them look better).

In Tesla case, it's because the non-GAAP numbers represent how they view and make decisions about their business internally. It makes them look better in some dimensions and worse in others. They report on it because it gives insights into how they think about things.

Based on the analyses I've read, it looks like a big driver of the non-GAAP difference is Tesla completely ignoring the cost of acquiring SolarCity. Is that a fair analysis? It depends. Those non-GAAP numbers suggest the car manufacturing business is doing well, but hide how Tesla is doing overall (including cash flow) as a result of SolarCity.

By design, GAAP accounting principles are very conservative, to make it harder for deceptive actors to conceal losses. However, for making management decisions, GAAP accounting principles are so conservative and rigid that they can actually obscure the key drivers of a business. This is why management accounting is historically done differently than financial accounting. Financial accounting is optimized for revealing fraud, not for understanding or running businesses. Therefore, if someone chooses to use non-GAAP accounting, you're right it can mean they are hiding something, but it can just as easily mean they are trying to relay more useful and informative numbers.

In all cases, of course, it's important to understand what the numbers mean.

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