Although financial statements are prepared in accordance with applicable financial reporting standards, users are demanding more information. This information varies from providing more information on individual items within the financial statements to the disclosure of additional performance measures (APMs). These APMs can assist users in making investment decisions, but they also have limitations.

What is an APM?

An APM is a measure of financial performance not specifically defined by the applicable financial reporting framework.

IAS 1 Presentation of Financial Statements permits entities to disclose additional information that will help financial statement users to better understand a company’s performance and position. Many companies therefore disclose APMs because they provide additional useful information for users who are trying to understand their financial performance and financial health.

Different types of business generally disclose different APMs. Some APMs commonly disclosed by companies in the supermarket sector include:

Like-for-like sales: often defined as the year-on-year growth in sales from stores open for more than one year. This enables comparisons of growth between retailers that have different strategies with regards to store expansion and closure.

Underlying profit before tax: often defined as profit before tax after excluding items that might distort comparability between periods. This enables additional insight into year-on-year performance and is in line with how performance is measured internally.

Retail free cash flow: often defined as net cash generated from retail operations, less interest and tax paid, retail capital expenditure, and lease payments. This measures the ability of the retail business to generate cash.

Net debt: often defined as cash equivalents less overdrafts, borrowings, lease liabilities and derivatives. This enables assessment of liquidity and whether the company can cover debt commitments.

Benefits and criticisms of APMs

APMs can be important in assisting users in making investment decisions, as they allow them to gain a better understanding of a company’s financial statements and to evaluate it through the eyes of the management. They can also be an important instrument for easier comparison of companies in the same sector, market or economic area. 

However, APMs appear to be used by some companies to present a confusing or optimistic picture of their performance by removing negative aspects. Sometimes, there is bias in how they are calculated – for instance, companies tend to exclude a range of different expense items when calculating ‘underlying profit’ but remove far fewer items of income. Other issues include inconsistency in the basis of calculation from year to year, inaccurate classification of items and a general lack of transparency. Often there is little information provided on how alternative profit figures have been calculated or how they reconcile with the profit reported in the financial statements. 

Best practice

There is demand for more guidance in this area. However, a balance is needed to provide companies with enough flexibility to report relevant information, while also ensuring financial statement users are able to judge the usefulness of the APMs.

To this end, the European Securities and Markets Authority (ESMA) has launched guidelines that address the concept, description and presentation of APMs. The main requirements are:

  • Issuers should define the APM used, the basis of calculation and give it a meaningful label and context;
  • APMs should be reconciled to the financial statements; 
  • APMs that are presented outside financial statements should be displayed with less prominence;
  • An issuer should provide comparatives for APMs and the definition and calculation of the APM should be consistent over time; and
  • If an APM ceases to be used, the issuer should explain its removal and the reasons for the newly defined APM.

However, these guidelines may not be practicable when the cost of providing this information outweighs the benefits that users obtain from it. Companies presenting APMs will most likely incur both implementation costs and ongoing costs. Although most of the information required by the guidelines is already collected for internal management purposes, it may not be in the format needed to satisfy the disclosure principles. 

ESMA believes that the costs will not be significant because APMs should generally not change over periods. Therefore, ongoing costs will relate almost exclusively to updating information for every reporting period. ESMA believes that the application of these guidelines will improve the understandability, relevance and comparability of APMs.

Below is an example of an APM disclosure:

To provide shareholders with additional insight into the performance of the business, an adjusted measure of profit (underlying profit before tax) is provided to supplement the numbers that have been presented in accordance with IFRS Accounting Standards. This adjusted measure reflects how the business measures performance internally.

Underlying profit before tax excludes items recognised in profit or loss before tax which, if included, could distort comparability between periods. Determining which items are to be adjusted requires judgement, in which the Group considers items which are significant either by virtue of their size and/or nature, or that are non-recurring.

Underlying profit is not an IFRS Accounting Standards measure and is not directly comparable to other companies.

Swipe to view table

Group profit before tax   38.6   24.3  
Non-underlying items:          
Redundancy and closure provisions   5.1   3.2  
Financial asset fair value movements   (3.6)   (1.9)  
Net expense from legal disputes   2.6   1.3  
Losses on property disposals   7.6   8.1  
Underlying profit before tax   50.3   35.0  

Redundancy and closure provisions primarily relate to the costs due to be paid on the future closure of all mini stores in train stations and airports.

Financial asset fair value movements relate to income or expenses arising on financial instruments that have been presented in profit or loss, but which do not relate to underlying performance.

Net expense from legal disputes relates to income less expenses incurred on legal cases settled during the year. The Group has two outstanding legal disputes.

Profit on property disposals relates to losses incurred on the sale of non-trading properties. Such losses are not related to ongoing operating activities. 

This disclosure embodies many of the best practices identified by ESMA:

  • a description of the APM is provided
  • the method of calculation has been shown
  • the APM has been reconciled to the group’s profit before tax in the financial statements
  • comparative information has been provided, and
  • the calculation of the APM appears consistent year-on-year.

Sufficient detail has been provided to enable financial statement users to question the adequacy of the APM calculation. For example, some users may wonder whether legal disputes are an ongoing issue for this group: if these costs will be incurred year after year, what is the justification for excluding them from the APM?

As noted in this article, some users are wary of the motivation behind APM disclosures. In the reconciliation, underlying profit before tax is substantially higher than group profit before tax. Is this APM providing useful information, or presenting an over-optimistic view of the group’s performance?

Environmental, social and ethical factors

Companies are expanding the range of APMs disclosed in their financial reports. Increasingly, these focus on the impact of their business model on the environment and on society. Performance can be measured in many ways, and not all of these are financial.

For example, Iceland, a frozen food supermarket in the UK, reports its percentage ‘food waste’ (food waste as a proportion of total sales). Iceland also discusses its progress towards the reduction of food waste year-on-year, and the initiatives used to distribute surplus food to charitable causes.

There are many reasons why APMs such as these are of interest to stakeholders:

  • reducing food waste will reduce a company’s carbon footprint, and a company’s success here may attract green customers and investors
  • reducing waste will help keep selling prices low, which is important in times of high inflation, or when there is a ‘cost of living’ crisis
  • lower costs will improve profits and cash flow.


Financial statement users are demanding different types of information to assess the performance, position and prospects of companies. APMs can help fill this information deficit, but only if they are calculated and presented in ways that are useful.

Written by a member of the Strategic Business Reporting examining team