By John Butters, FactSet

While all publicly traded U.S companies report EPS on a GAAP (generally accepted accounting principles) basis, many U.S. companies also choose to report EPS on a non-GAAP basis. There are mixed opinions in the market about the use of non-GAAP EPS. Supporters of the practice argue that it provides the market with a more accurate picture of earnings from the day-to-day operations of companies, as items that companies deem to be one-time events or non-operating in nature are typically excluded from the non-GAAP EPS numbers. Critics of the practice argue that there is no industry-standard definition of non-GAAP EPS, and companies can take advantage of the lack of standards to (more often than not) exclude items that have a negative impact on earnings to boost non-GAAP EPS.

As of today, all of the companies in the Dow Jones Industrial Average (DJIA) have reported EPS for Q3 2016. What percentage of these companies reported non-GAAP EPS for Q3 2016? What was the average difference and median difference between non-GAAP EPS and GAAP EPS for companies in the DJIA for Q3 2016? How did these differences compare to last year?

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For Q3 2016, 21 of the 30 companies in the DJIA (or 70%) reported non-GAAP EPS in addition to GAAP EPS for the third quarter. Of these 21 companies, 16 reported non-GAAP EPS that was higher than GAAP EPS. The average difference between non-GAAP EPS and GAAP EPS for all 21 companies was 181.1%, while the median difference between non-GAAP EPS and GAAP EPS for all 21 companies was 10.4%. The average difference between non-GAAP EPS and GAAP EPS for the DJIA was unusually large because of DuPont. For Q3 2016, DuPont reported non-GAAP EPS of $0.34 and reported GAAP EPS of $0.01. Thus, the percentage difference between non-GAAP EPS and GAAP EPS for DuPont for Q3 was 3300%. Excluding DuPont, the average difference between non-GAAP EPS and GAAP EPS for the remaining 20 DJIA companies was 24.7%.

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For Q3 2015, 19 of the 30 companies in the DJIA (or 63%) reported non-GAAP EPS in addition to GAAP EPS for the quarter. Of these 19 companies, 16 reported non-GAAP EPS that was higher than GAAP EPS. The average difference between non-GAAP EPS and GAAP EPS for all 19 companies was 17.1%, while the median difference between non-GAAP EPS and GAAP EPS for all 19 companies was 10.6%.

Thus, the average difference between non-GAAP EPS and GAAP EPS for the Dow 30 was larger in Q3 2016 relative to Q3 2015. However, the median difference between non-GAAP EPS and GAAP EPS for the Dow 30 in Q3 2016 was nearly equal to the median difference in Q3 2015. While more DJIA companies reported non-GAAP EPS in Q3 2016 (21) compared to Q3 2015 (19), the same number of DJIA companies (16) reported non-GAAP EPS that exceeded GAAP EPS in both quarters.

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Companies in the DJIA reported higher average and median year-over-year growth in non-GAAP EPS compared to GAAP EPS for Q3 2016. For the 21 companies in the DJIA that reported non-GAAP EPS for Q3 2016, the average non-GAAP EPS growth rate was 10.8%, while the median non-GAAP EPS growth rate was 5.1%. For these same 21 companies, the average GAAP EPS growth rate for Q3 2016 was -3.7%, while the median GAAP EPS growth rate for Q3 2016 was -1.2%.