BI's Chart of the Day shows that differences between the real PE and the fake PE can be rather large. The blue bar (GAAP PE) is always higher than the beige bar because it's calculated without the accounting tricks that artificially raise the E in PE.
Here's what stock market valuations look like if you add back all the bad stuff companies like to take out
When a company announces its quarterly financial results, it'll sometimes offer a two sets of earnings.
The first is GAAP earnings, which are based on generally accepted accounting principles. This is an industry standard that requires every industry and company to account for and report items in a uniform way.
But some companies and industries believe GAAP earnings aren't always representative of the health of the underlying operations. GAAP requires companies to fully recognize unusual events like a big gain or loss on the sale of an asset, the writedown of an asset, an unusually large legal expense, or whatever else you might imagine could occur unexpectedly. So, some companies will offer a second set of earnings to remove this noise. These are sometimes referred to as pro forma earnings, adjusted earnings, earnings excluding non-recurring items, or just non-GAAP earnings.
