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Strategic Business Reporting (International) · Analysis and interpretation of financial and non-financial information and measurement of performance

Alternative Performance Measures (APMs) in ACCA SBR

Updated 11 October 2026 · Fact-checked

An alternative performance measure (APM) is a performance figure, such as EBITDA or adjusted profit, that is not defined by IFRS Accounting Standards. Management uses it to explain results. To handle it in SBR, say why it is useful, test it for bias, and state what good presentation requires.

Understand Alternative Performance Measures (APMs)

IFRS Accounting Standards define profit or loss and earnings per share. IFRS 18 (effective 1 January 2027) introduces defined subtotals such as operating profit and profit before financing and income taxes. Many entities also report other figures. EBITDA, adjusted profit, underlying earnings, free cash flow and like-for-like growth are common examples. These are alternative performance measures (APMs), sometimes called non-GAAP or non-IFRS measures.

Entities use APMs because management believes they show the business better. EBITDA removes the effect of financing, tax and capital intensity, so it helps compare entities. Adjusted profit removes items that management says are unusual, such as restructuring costs or impairment. Investors and lenders often use these figures in valuations and covenants, so they matter.

The risk is bias. Management chooses what to remove. Costs are often excluded and gains are rarely excluded. This can make results look better, can hide recurring costs, and can affect bonuses linked to the measure. A measure may be labelled "one-off" yet appear every year. EBITDA also ignores the cost of replacing assets and, in some views, hides lease or share-based payment costs.

Regulators therefore give guidance. The ESMA Guidelines on APMs (applicable to issuers in the EU) set out expectations. Define each APM and give it a clear label that is not misleading. Reconcile it to the most directly reconcilable line item in the financial statements. Do not give it more prominence than the IFRS figures. Show comparatives, explain why the APM is useful, and apply it consistently over time. Explain any change in definition. Exam answers should note that the guidelines target those issuers, but the principles are good practice anywhere.

In SBR you are asked to evaluate, not just define. The strongest answers link the APM to the Conceptual Framework qualities of faithful representation and neutrality, and to ethics, where earnings management may breach integrity. You can also link to IFRS 18, effective 1 January 2027. It requires entities to disclose, in a single note, management-defined performance measures (MPMs). These are subtotals of income and expenses that the entity uses in public communications outside the financial statements to communicate management's view of performance. The note must explain each MPM and reconcile it to the most directly comparable total or subtotal required by IFRS Accounting Standards. For each reconciling item, the note must also disclose the income tax effect and the effect on non-controlling interests. MPMs are income and expense subtotals only. So cash-flow measures such as free cash flow, and growth measures such as like-for-like growth, fall outside IFRS 18 MPMs, although they are still APMs.

Key rules to remember

EBITDA
EBITDA = Profit before tax + Net finance costs (finance costs − finance income) + Depreciation + Amortisation
Not an IFRS-defined measure. Always state the definition you use. Some entities start from operating profit instead. Some entities also add back impairment. Label that figure adjusted EBITDA, because impairment is a separate adjustment and not part of EBITDA.
Adjusted profit
Adjusted profit = IFRS profit ± items management excludes (e.g. restructuring, impairment, fair value gains)
Check each adjustment. Adding back tax effects may also be needed if starting after tax.
Reconciliation principle
APM − adjustments = nearest IFRS line item
ESMA guidance expects a reconciliation to the most directly reconcilable line item in the financial statements. IFRS 18 uses different wording for MPMs: the most directly comparable total or subtotal required by IFRS Accounting Standards.
Presentation checklist
Define · Label clearly · Reconcile · Not more prominent than IFRS · Explain usefulness · Comparatives · Consistency
Use as a memory list when asked about regulatory guidance.

How to solve Alternative Performance Measures (APMs) questions

Use this method for any APM question, whether you must calculate a measure, critique it, or advise on disclosure.

  1. 1Identify the APM in the scenario and write its definition in one line. If it is not defined, say what it appears to include.
  2. 2Calculate or reconcile it to the nearest IFRS figure where numbers are given. Show each adjustment on its own line.
  3. 3Explain why management might use it, such as comparability, removing noise, or reflecting how the business is run.
  4. 4Challenge each adjustment. Is it truly unusual? Does a similar item recur? Are gains and losses treated symmetrically?
  5. 5Assess the effect on users and on faithful representation and neutrality. Consider bonuses, covenants and share price.
  6. 6State presentation requirements: clear label, definition, reconciliation, no undue prominence, comparatives, consistency.
  7. 7Add the ethical or professional angle if relevant, such as integrity and earnings management.
  8. 8Conclude with a clear recommendation, for example to keep the measure only if disclosed properly, and write it to the right audience.

Quickest way: Define, Reconcile, Challenge, Disclose

When to use it: Use when time is short, such as a 6 to 10 mark discussion requirement.

  1. Define the measure in one sentence.
  2. Reconcile it to IFRS profit, with figures if given.
  3. Give one benefit and two risks drawn from the scenario.
  4. List the presentation points: label, definition, reconciliation, prominence, consistency.
  5. Finish with a one-line recommendation to the board or the user of the report.

Common mistakes in Alternative Performance Measures (APMs)

  • Saying APMs are illegal or wrong.

    Students see the word "non-GAAP" and assume it is banned.

    Fix: State that APMs are allowed and often useful, but must be presented fairly and not misleadingly.

  • Defining EBITDA without saying what it ignores.

    Students memorise the definition only.

    Fix: Add that it ignores capital replacement costs, financing and tax, so it is not a cash flow measure.

  • Accepting "one-off" labels without testing them.

    Students trust management wording in the scenario.

    Fix: Look for repeated items across years and ask whether gains are excluded in the same way as losses.

  • Calculating the APM but giving no reconciliation.

    Time pressure leads to showing only the final figure.

    Fix: Show a short table-style list from IFRS profit to the APM, one adjustment per line.

  • Giving no link to ethics or to the Conceptual Framework.

    Students treat APMs as a purely technical topic.

    Fix: Mention neutrality, faithful representation, integrity, and the risk of bonus-driven earnings management.

  • Treating the ESMA guidelines as binding on all entities.

    Students overgeneralise a regional rule.

    Fix: Say they apply to issuers in the EU, and that the principles are good practice elsewhere.

Worked examples

Example 1

Zeta Co reports profit before tax of $42 million. It includes finance costs of $6 million, investment income of $1 million, depreciation of $11 million and amortisation of $3 million. Management also reports adjusted profit before tax, adding back restructuring costs of $4 million and deducting a one-off gain on sale of property of $5 million. Calculate EBITDA and adjusted profit before tax.

Show the solution
  1. EBITDA starts with profit before tax: $42 million.
  2. Add finance costs: 42 + 6 = 48.
  3. Deduct investment income: 48 − 1 = 47.
  4. Add depreciation and amortisation: 47 + 11 + 3 = 61.
  5. The property gain is not an interest, depreciation or amortisation item, so it stays in this $61 million. Under the strict EBITDA definition used here, EBITDA is $61 million. Restructuring costs are not an add-back under this definition either.
  6. Management's version of EBITDA is a separate line and you should label it adjusted EBITDA. If management excludes the gain and adds back restructuring, it is 61 − 5 + 4 = $60 million.
  7. Adjusted profit before tax starts at $42 million.
  8. Add back restructuring: 42 + 4 = 46.
  9. Deduct the one-off property gain: 46 − 5 = 41.
  10. Challenge the adjustments. The cost add-back and the gain deduction are symmetric, so the treatment is balanced only if restructuring does not recur. If Zeta restructures every year, the add-back hides a recurring cost and the adjusted profit is not neutral.

Answer: Using the strict definition (profit before tax plus net finance costs, depreciation and amortisation), EBITDA is $61 million. This includes the $5 million property gain. Management's adjusted EBITDA, shown as a separate line, is $60 million (61 − 5 + 4). Adjusted profit before tax is $41 million. The gain was removed as well as the cost, so the treatment is symmetric. It is neutral only if restructuring does not recur, so test that before accepting the "one-off" label. State which definition you use.

Exam tips

  • When a scenario gives you an APM, always ask who benefits. Look for bonuses, covenants or a share price target.
  • Use the phrase "faithful representation" and "neutrality" when criticising an adjustment. It earns credit for applying the Framework.
  • Show your reconciliation line by line. Method marks are available even if one figure is wrong.
  • Earn professional skills marks by giving a clear, balanced view and a firm recommendation, not a list of definitions only.

Practice questions from Analysis and interpretation of financial and non-financial information and measurement of performance

Alternative Performance Measures (APMs) in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Alternative Performance Measures (APMs): frequently asked questions

What is an APM in the SBR exam?

An APM is a performance measure that is not defined by IFRS Accounting Standards, such as EBITDA or adjusted profit. SBR expects you to explain why it is used, spot bias, and discuss how it should be presented.

Is EBITDA misleading?

It can be. It ignores the cost of replacing assets, financing and tax, and it is not cash flow. It is useful for comparison, but only if defined and reconciled clearly.

What do the ESMA guidelines on APMs require?

They expect issuers to define and label each APM clearly, reconcile it to the financial statements, and not give it more prominence than IFRS figures. They also expect comparatives, an explanation of usefulness, and consistent use over time.

How do I discuss APMs in an SBR answer?

Define the measure, reconcile it if numbers are given, then discuss benefits and risks using the scenario. Add presentation requirements and an ethical or Conceptual Framework link. End with a clear recommendation.