What is typically excluded from non-GAAP earnings reporting?

Non-GAAP earnings reporting is a financial measure that companies often use to provide a clearer picture of their operational performance by excluding certain items that may not reflect the company's core operations. Typically, non-GAAP earnings exclude non-cash expenses, such as stock-based compensation. The rationale behind this exclusion is that these expenses do not require an outflow of cash and may distort the true financial picture of the company's operational profitability.

In the case of stock-based compensation, while it is a legitimate expense for accounting purposes, many companies choose to exclude it from their non-GAAP earnings calculations to highlight the cash earnings generated by their business activities. This can offer investors a clearer view of the company's cash-generating capabilities and financial health, aligning with the goal of non-GAAP measures to present performance that management believes is more reflective of the ongoing business operations.

Other items, such as cash revenue, interest income, and operating income, are typically included in non-GAAP earnings reporting as they directly relate to the company’s core financial performance and cash flow generation. Thus, excluding non-cash expenses like stock-based compensation helps provide a more realistic perspective on the company's financial health apart from accounting considerations.