Non-GAAP Measures: Adjusted EBITDA and Its Rules

Introduction

In its 2025 annual report, Uber reported net income of $10.1 billion and adjusted EBITDA of $8.7 billion. A company's net income is usually far below its EBITDA, since EBITDA is calculated before interest, taxes, depreciation and amortization. Uber's was above it because of a $5.0 billion tax benefit from releasing the valuation allowance on its Dutch deferred tax assets, an accounting gain with no cash attached. Its adjusted EBITDA, meanwhile, added back $1.8 billion of stock-based compensation and $564 million of legal, non-income tax and regulatory reserve changes, both of which recur every year. Each figure tells part of the story, and neither tells all of it.

Non-GAAP measures are figures that adjust the numbers in financial statements prepared under generally accepted accounting principles (GAAP), and almost every listed company uses them. They are often the figures management, analysts and lenders focus on, which makes understanding how they are built, and what the Securities and Exchange Commission (SEC) allows, part of reading any company's results.

A non-GAAP financial measure is a numerical measure of historical or future performance, financial position or cash flow that excludes or includes amounts in a way that differs from the most directly comparable figure calculated under GAAP. Adjusted EBITDA, adjusted earnings per share, adjusted operating margin, free cash flow, organic revenue growth and constant currency growth are all common examples. Operating metrics that are not built from the financial statements, such as subscribers, trips or same-store counts, are not non-GAAP measures, although they are often presented alongside them.

Non-GAAP financial measure

Under SEC Regulation G, a numerical measure of a company's historical or future financial performance, financial position or cash flows that excludes amounts included in, or includes amounts excluded from, the most directly comparable measure calculated under GAAP. Companies using one in public disclosures must reconcile it to that GAAP measure.

Companies argue that the adjustments remove items that obscure the performance of the underlying business: restructuring charges, acquisition costs, impairments, gains and losses on investments, and the amortization of intangible assets created by acquisitions. Many of those arguments are reasonable, and the measures are useful when the adjustments are consistent from year to year. The difficulty is that management chooses the adjustments, and the incentive is to remove costs rather than gains.

Two sets of SEC rules govern non-GAAP measures. Regulation G applies to any public disclosure, including press releases and investor presentations, and requires a reconciliation to the most directly comparable GAAP measure. Item 10(e) of Regulation S-K adds requirements for measures in filings, and its presentation requirements also reach earnings releases furnished on Form 8-K: the GAAP measure must be presented with equal or greater prominence, and the company must explain why the non-GAAP measure is useful. In filings, certain adjustments are also prohibited, such as excluding charges that require cash settlement from liquidity measures other than earnings before interest and taxes (EBIT) and EBITDA, or describing an item as non-recurring when a similar item is reasonably likely within two years or occurred within the prior two.

The SEC staff's interpretations, last substantially revised in December 2022 and collected on its non-GAAP guidance page, go further. Excluding normal, recurring cash operating expenses necessary to run the business can make a measure misleading, even if the expense occurs irregularly. A measure built on accounting methods that differ from GAAP, such as recognizing revenue faster than the rules allow, can be misleading in itself. And a non-GAAP measure can be given excessive prominence in many ways, from headlines to ratios that use non-GAAP figures without their GAAP equivalents. Non-GAAP measures are among the most frequent subjects of SEC comment letters to companies.

Uber's Reconciliation

Uber starts its reconciliation from net income attributable to Uber, which it identifies as the most directly comparable GAAP measure. That is the starting point the SEC staff expects for EBITDA presented as a performance measure: operating income does not qualify, because EBITDA adjusts for items, such as interest and taxes, that operating income never included. The reconciliation shows how a company moves from net income to its preferred measure:

The first half of the reconciliation, from net income to income from operations, removes items most analysts would also remove when assessing operations: tax benefits from valuation allowance releases, which are described in deferred tax assets and valuation allowances, and investment gains and losses. The second half is where judgment comes in.

The useful question for each adjustment is whether the item is a real, recurring cost of running the business. Several common add-backs fail that test, at least in part.

Stock-based compensation is the largest and most debated. It is a real cost to shareholders, paid in dilution rather than cash, and it recurs every year; for Uber, it equaled about a fifth of adjusted EBITDA in 2025. Many investors and bankers treat it as an operating expense or subtract the cash spent on buybacks to offset dilution, the debate examined in the Valuation guide's article on stock-based compensation add-backs. Legal and regulatory costs present a similar problem for a company like Uber, whose business model generates disputes with regulators and drivers in many countries: the costs vary from year to year but have appeared every year.

Adjustments Most Analysts Accept

Other adjustments are widely accepted. Amortization of acquired intangibles is a non-cash charge whose size depends on acquisition history rather than operations, and excluding it improves comparability between acquirers and organic growers, provided the cost of the acquisitions is remembered elsewhere. Gains and losses on investments, impairments and the effects of one-off tax changes are usually excluded by analysts as well. Cost savings or synergies not yet achieved, by contrast, should not appear in a historical measure at all, although they are common in the EBITDA definitions of credit agreements, as described in leverage and coverage ratios.

Consistency and Changes

The most important test is consistency. A company that changes its definition of adjusted earnings, adds new categories of adjustment or stops excluding an item when it turns into a gain is managing the measure rather than the business. Companies must disclose changes, and comparing the reconciliations over several years shows whether the list of adjustments has grown. A similar discipline applies to the broader exercise of normalizing earnings described in one-time items: restructuring, impairments and gains.

Bankers rely on non-GAAP measures constantly: comparable company multiples are usually based on adjusted EBITDA and adjusted earnings, merger models are built on them and credit agreements define their covenants with them. The discipline is to treat the company's adjusted figures as a starting point rather than an answer. For a comparable company analysis, that means applying the same definition to every company, whatever each one chooses to exclude, including a consistent treatment of stock-based compensation. For a valuation, it means asking whether a buyer would pay for EBITDA that excludes costs the business will keep incurring.

Non-GAAP measures are not inherently misleading. Used consistently and reconciled transparently, they can show the performance of a business more clearly than figures that mix operations with acquisition accounting, tax effects and investment gains. Uber's two numbers illustrate both sides: its net income overstated its 2025 operating earnings because of a one-time tax benefit, while its adjusted EBITDA understated its costs by excluding stock compensation and recurring legal charges. The analysis lies in understanding both, reading the reconciliation line by line, and deciding which figures belong in the valuation.