Four times a year, public companies provide an in-depth look at their financial performance — and drilling into those figures is one of investors' most important jobs. But making sense of them isn't always easy. One big reason for confusion is that companies have some leeway on the specific metrics they highlight. In particular, we're talking about the "adjustments" that get made to metrics such as earnings per share and operating margin. This often shows up in earnings releases as GAAP versus non-GAAP results. It's fair for investors to ask: What's the difference between GAAP and non-GAAP? Should investors care about those adjustments in evaluating a company's performance and investment prospects? And if so, how do you know what is being adjusted for? Before we go about answering these questions, let's set the stage: GAAP is short for generally accepted accounting principles. A not-for-profit group called the Financial Accounting Standards Board (FASB) issues the standards, and public companies in the U.S. need to adhere to GAAP rules when submitting their financial statements to the Securities and Exchange Commission. Quarterly results are submitted to the SEC on Form 10-Q, and full-year results are found in the 10-K. (It's worth noting that the Trump administration has been pushing for companies to report only twice per year.) But separate from those regulatory filings that emphasize GAAP numbers, companies generally issue their financial results in earnings press releases along with other associated materials, such as slideshow presentations that executives go over on their conference call. It is in this realm where the issue of GAAP versus non-GAAP numbers is most prominent. Why investors debate GAAP vs. non-GAAP earnings Some companies focus their press release and earnings calls on GAAP numbers — within the CNBC Investing Club's portfolio, Microsoft , Apple , Meta Platforms , and Amazon are good examples of those that do. This decision by management teams should be viewed as a positive, and allows you to pay up a bit when looking to value those GAAP-focused companies. There are a few reasons why: The GAAP numbers lack adjustments based on management discretion and are therefore more comparable across companies. For example, adjusted earnings will more heavily reward a company that relies on stock grants to pay employees rather than cash, even though such a compensation strategy could ultimately have long-term impacts on other shareholders (more on this later). Additionally, the lack of adjustments ensures consistency from one period to the next. There are no one-time adjustments made to pretend large legal costs or major expenses tied to an acquisition did not eat into quarterly profits, when they most certainly did. The increased oversight that comes with GAAP numbers, thanks to the aforementioned FASB, is another reason to reward a company with a higher valuation. After all, there's a reason why a company needs to report four straight quarters of GAAP profitability before they're allowed to join the S & P 500, the benchmark U.S. stock index. However, many companies also report non-GAAP "adjusted" numbers, especially for earnings per share. It's very common for younger companies to do so, such as a newly public software firm. Additionally, given accounting rules around patents, among other things, pharmaceutical and biotech companies are known to play up their adjusted EPS performance. Which set of numbers to use when valuing the company is up to you. But first, understand what the market and the rest of the company's shareholder base are focused on. Why? Because those are the results that will determine the direction of the stock. In other words, there are limitations to using your own rubric. If a company reported negative year-over-year GAAP earnings growth, you might be disappointed if that's your preferred gauge. But if Wall Street is actually concerned with the adjusted number and it comes in ahead of consensus expectations, you may get caught offside by the stock move. Adjusted EPS is likely the best-known non-GAAP metric. While each firm's calculation of adjusted earnings can differ, there are a few common items that get "adjusted" out of the GAAP figure to arrive at the alternative number. These include stock-based compensation expenses; amortization of purchased intangibles such as patents and trademarks; acquisition and divestiture charges; and restructuring costs like severance packages and plant-closure expenses. Some legal costs, such as significant settlement payments, may sometimes be adjusted out. The research analysts whose estimates form the basis of the Wall Street consensus will account for the adjustments that a company makes to its GAAP results. The items that a given company will adjust for generally stay consistent over time, though the magnitude may change quarter to quarter. Of course, some investors may take issue with the adjustments that a company relies on to calculate adjusted earnings. The treatment of stock-based compensation, in particular, is a big point of contention. How stock-based compensation impacts EPS As mentioned, that is a common expense under GAAP standards that gets adjusted out in a modified EPS figure. The simple argument in favor of this practice: Stock-based compensation is a non-cash charge, and the equity paid out to employees did not really cost the company money that would ever need to flow out of the cash on the balance sheet. For companies that routinely do this, the Wall Street consensus will indeed include assumptions about how much a company is relying on stock-based compensation and factor that into future EPS projections. On the other hand, the critics of this practice point out that stock-based compensation does indeed dilute existing shareholders because it increases the number of shares with a claim to the profits of the company. As a result, it can also impact earnings growth on a per-share basis — more shares in the denominator as the numerator of net income stays the same. So, while it may not represent a cash cost, it does have a real-world financial cost. Stock-based compensation, given that it's a non-cash cost, also serves to inflate cash flow results. Therefore, some investors may opt to add back these costs when grading a company to get a better sense of what the results would be if the company had to pay this expense in cash. Now let's drill further into the question of reconciliation — basically, how do you figure out what is being excluded from the legally required GAAP numbers? The companies that do lean on non-GAAP results have to include a reconciliation showing what adjustments were made and how large those adjustments were. This is often found in the earnings release directly or in a separate document posted on a company's investor relations page. Consider once again the topic of stock-based compensation. Let's say a company worth $200 billion discloses that it bought back $10 billion worth of stock in a quarter. It seems positive that the company retired that much stock, equal to about a 5% return to shareholders. Before reaching that conclusion, though, it's worth looking at how much the company paid out in stock-based compensation, which can be found in the operating cash flow statement. In our example, it turns out this same company also paid out $5 billion in stock-based compensation in the quarter. As a result, that supposed 5% return to shareholders is more like 2.5% as the net reduction was only $5 billion worth of stock on a $200 billion market cap. Bottom line How investors choose to evaluate the adjustments that a company makes to certain financial metrics is up to them, but at the very least, everyone should be aware of the items being excluded. The companies have to provide them. The market gets to decide how to treat them. As for where the CNBC Investing Club sits on this debate, we tend to focus on the same figures that analysts are basing their projections on. You want to ensure that the results you are using to grade the company are apples-to-apples with the analyst estimates and what the majority of the shareholder base is relying on. Only then can we really reconcile the stock's price action with the results. As companies mature, what the Street focuses on may evolve, too. Of course, when you invest, it is your own money on the line. If you are not comfortable with the adjustments management is making, you can consult the reconciliations to add back in, say, restructuring costs to the earnings per share calculation. Just be mindful that Wall Street may be more willing to look past costs you are choosing to factor in, and as a result, you may not always agree with the market's reaction to a print. But, as the saying goes, that's what makes a market. We all have to determine for ourselves how best to judge a company's results and whether we are comfortable investing in a stock given the practices of the management team at the helm. (See here for a full list of the stocks in Jim Cramer's Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. 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