Can you trust the earnings number?
Net income is a calculated figure, and calculations involve choices. Two honest accountants can produce different profits for the same company. This isn't fraud — it's the nature of accrual accounting. Knowing where the judgement lives is what separates a careful reader from a naive one.
Where judgement enters
- Depreciation. A factory bought for $100 million isn't expensed all at once — its cost is spread over its useful life. But how many years? Choosing 10 versus 20 years changes each year's reported profit, without a single dollar of cash moving.
- Revenue recognition. When exactly is a multi-year contract "earned"? Booking it upfront versus over time reshapes the timing of reported revenue.
- One-time items. A lawsuit settlement, a restructuring charge, a gain from selling a division — these can swell or shrink net income in a single period without reflecting the ongoing business.
GAAP vs "adjusted" earnings
Companies report official GAAP (or IFRS) net income — the rules-based figure — and often also an adjusted or non-GAAP number that strips out items management calls "unusual." Sometimes those adjustments are fair; sometimes they conveniently remove recurring costs (like stock-based compensation, which is very real to shareholders). The honest habit: read both, and notice what was adjusted away.
An illustration of the gap
Imagine a company reports GAAP net income of $2 billion but "adjusted" net income of $3.5 billion. The $1.5 billion difference is the story. If it's a genuine one-off (say, a legal settlement), fine. If it's the same "one-off" appearing three years running, the "adjusted" number is flattering the picture. You don't need to conclude anything dramatic — you just need to see the gap and ask what's inside it.
The professional's stance
Earnings are an opinion expressed in numbers — a defensible one, governed by rules, but an opinion. Which is why the next statement matters so much: cash is far harder to fake than profit.
In the data
The statements themselves carry only the as-reported figures. The adjusted number lives elsewhere: in the earnings record, where the "actual" EPS that analysts' consensus is scored against is, for many companies, management's non-GAAP figure. Here are both for Snowflake's quarter to 30 April 2026:
The earnings record says the company earned $0.39 a share; the income statement for the same quarter reports a net loss of about $296 million. Nothing is wrong with either number. They measure different things, and reading them side by side is how you see the gap. Stock-based compensation is the other surprise: it shows up on the cash flow statement as a non-cash add-back, not as its own line on the income statement.
Try it now
- Look for the judgement lines on the income statement: non-recurring items, extraordinary items, discontinued operations.
How big is each relative to net income? A row printed as an em dash is a line the filing did not break out, not a zero. 2. Back to the Snowflake table above. Divide net income by the share count for a rough per-share figure and set it beside the reported "actual" EPS. The distance between the two is what management adjusted away. 3. The depreciation figure lives on the cash flow statement, and the table below prints it beside the profit it was subtracted from:
Notice how large a non-cash expense depreciation is — and remember no cash left the building for it this year. That is exactly why the next unit exists.