Distributable Earnings
A non-GAAP measure of the cash earnings a company has available to pay out, used heavily by alternative asset managers and business development companies.
Distributable Earnings
Distributable earnings is a non-GAAP metric that estimates the cash earnings a company has genuinely available to distribute to shareholders. It is used most heavily by alternative asset managers, such as private equity and credit firms, and by business development companies (BDCs), whose GAAP results are distorted by large non-cash items and mark-to-market swings that do not reflect the cash the business can actually pay out.
Why GAAP falls short for these firms
Alternative asset managers earn performance fees and carry stakes whose GAAP value swings with unrealized marks every quarter. A private equity firm can report a huge GAAP gain because its funds' holdings were marked up, without receiving a dollar of cash. GAAP net income for these businesses is volatile and only loosely connected to distributable cash. Distributable earnings strips out the noise to show what is really available to pay dividends.
How it is built
There is no single standardized definition, but the construction is broadly consistent:
- Start with the firm's fee-related earnings and realized performance income.
- Include only realized gains, not unrealized mark-to-market changes.
- Add back non-cash charges such as equity-based compensation and amortization of intangibles.
- Subtract cash taxes and any genuine cash costs.
Worked example
An asset manager reports:
- Fee-related earnings: $400m
- Realized performance income: $150m
- Unrealized mark-to-market gains: $500m (excluded)
- Equity-based compensation add-back: $50m
- Cash taxes: $80m
Note the $500m of unrealized gains is excluded entirely, because no cash has changed hands. GAAP net income might show well over a billion dollars thanks to those marks, but only $520m is genuinely distributable. Dividing distributable earnings by shares outstanding gives distributable EPS, the figure these firms and their investors actually use to judge the dividend.
The caveat
Because distributable earnings is non-GAAP and self-defined, companies have latitude in what they add back, and aggressive add-backs can flatter the number. Equity-based compensation, in particular, is a real economic cost that dilutes shareholders even though it is non-cash, so adding it back overstates true owner earnings. Treat distributable earnings as a useful cash-focused lens for firms whose GAAP results are genuinely distorted, but scrutinize the add-backs and compare them across peers rather than accepting the headline figure.
Frequently asked questions
What is distributable earnings?
It is a non-GAAP measure of the cash earnings a company has available to pay out to shareholders, used mainly by alternative asset managers and business development companies. It counts realized income and excludes unrealized mark-to-market gains that carry no cash.
Why do asset managers use distributable earnings instead of GAAP net income?
Because their GAAP results swing with large unrealized marks on fund holdings that do not reflect any cash received. Distributable earnings strips out those non-cash swings to show what the firm can actually distribute, giving a steadier picture of dividend capacity.
What is the main weakness of distributable earnings?
It is self-defined and non-GAAP, so companies choose their own add-backs. Adding back equity-based compensation is especially questionable because it is a real dilutive cost, so aggressive add-backs can overstate the true cash available to owners.